Springhouse Solicitors

Settlement agreement FAQs

We have produced many guides about settlement agreements, and here are your most popular questions about them.

What are settlement agreements?

Settlement agreements (which use to be called compromise agreements) are used to bring employment to an end. They are intended to achieve a “clean break” so that employees cannot bring claims against the employer after signing it. It is important to note that, in their first draft, settlement agreements will never settle claims that the employer might have against the employee. This would be a matter for negotiation.

Why do I need to get independent legal advice from a solicitor?

Settlement agreements involve employees giving away important legal rights that are written into statute. The statutes that bring these employment laws into force also say that they cannot be given away by employees in agreements or for money unless the employees have first taken proper legal advice. A settlement agreement will therefore usually contain an adviser’s certificate to show that this advice has been given by a solicitor.

What types of claim will a settlement agreement bring to an end?

Settlement agreements will bring to an end all types of right and claim that you have against your employer. These include contractual rights, for benefits and pay etc., other so called common law rights, for personal injury, negligence etc., and also your statutory rights. Contractual rights and common law rights do not need to be settled via a settlement agreement, but statutory rights do. You need to be careful that you do not unwittingly settle claims in respect of your pension (contractual rights) or in respect of potential personal injury claims (common law rights) when you sign a settlement agreement.

What sorts of employment rights will I be settling in the settlement agreement?

There are an enormous number of statutory employment rights that you may be waiving by signing the settlement agreement. Indeed, there is usually a long list of them in the settlement agreement itself, which makes the document so long. These will include: unfair dismissal; redundancy payments; deductions from wages; discrimination (on grounds such as gender, marital status, sexual orientation, transgender, racial origin, national origin, disability or age); claims for wages; maternity and paternity rights etc.

I am a public sector worker. Will the settlement agreement affect me differently?

Public sector workers do have some additional employment rights that are relevant to settlement agreements, and your legal adviser will need to be aware of these. For instance, public sector settlements are subject to a statutory maximum amount now, but they may also be the subject of other relevant statutory schemes. You will also need to be particularly careful about your pension rights.

What are the requirements for a settlement agreement to be valid?

The legislation is very specific about the form a settlement agreement must take. For instance, it must be in writing, relate to particular complaints or proceedings, be signed by the employee, have an adviser’s certificate attached, and must include certain wording making it clear that these requirements have been complied with.

What if the settlement agreement is not valid? Can I still bring a claim?

Yes you will usually be able to bring employment claims if the settlement agreement turns out to be invalid. However, the settlement agreement itself will still exist because this will be just a standard contract. The terms of that contract will probably mean that you need to give the money back that you have gained under the agreement. The demand for money back may go further, and require that you cover your employer’s legal and other costs in dealing with the subsequent claims.

What is the effect of the agreement on my employment claims?

The effect of the settlement agreement is that you will no longer be able to bring those employment claims in a Tribunal. This is very important to bear in mind when you are signing the agreement. It is important that you canvas with your lawyer all your potential claims, and all employment issues you have had in the past. Your lawyer will then be able to make sure that you are receiving adequate compensation, and that the final version of the settlement agreement is worded in a way that is satisfactory to you.

What sort of claims are usually settled in a settlement agreement?

All employment, contractual and common law claims are usually settled in a settlement agreement. The agreement will usually go further, and settle claims against all group companies, and the individuals employed or engaged in those group companies. It is important to remember that this is a wider effect to the settlement agreement: you will no longer have any employment related rights against these individuals and companies, but they may also be able to pursue you for breach of contract if you do something against the terms of the agreement, such as breaching confidentiality, or making a derogatory comment.

Settlement agreements do not usually cover claims for personal injuries of which you are not aware, and in respect of your accrued pension rights. Potentially settling your future personal injury claims is a very important matter, and is something that your employment lawyer should look at very carefully with you. These situations (such as asbestosis) are very unlikely to happen, but, if they did, they could be catastrophic.

How do I find out whether the settlement agreement is a good deal for me or not?

We have given some important guidance as to the value of the agreement elsewhere. You do need to be aware, however, that for the adviser to sign off the agreement and make it valid they do not usually need to advise you as to the value of the agreement, just what rights you are giving away. Indeed, the employer will not usually want to provide sufficient fees in the agreement to cover this advice. Many lawyers will not give you this advice within the fees on offer, but at Springhouse we promise always to consider the value of the agreement to you, and can usually do this within the costs that the employer has agreed to cover.

What happens if I don’t sign the agreement?

It is completely up to you whether you sign the settlement agreement or not. Usually there is a financial incentive for doing so, however. Where there is no financial incentive, we will usually advise you not to sign away important employment rights. One consequence of not signing the settlement agreement, of course, is that, if you are currently in a redundancy, disciplinary or performance improvement process, this may be followed through. You will still be able to bring employment claims, however, and should note the very restrictive time limits within which you need to do so, and the need to commence ACAS early conciliation as soon as possible.

Can you negotiate an increase on legal costs?

Yes, the amount on offer in the settlement agreement to cover legal costs will usually just be enough to have the adviser’s certificate signed and the agreement made binding. Any negotiation or additional advice will need to be covered in addition to this, and we will always seek to recover this from your employer for you.

Which payments will be taxable and which will be tax-free?

Only payments that are genuinely ex-gratia and non-contractual will be tax-free. This will usually be amounts that genuinely reflect the value of your potential employment claims, or monies that are purely for redundancy. Payments for untaken holiday, and notice period etc. will usually be taxable. We are not tax advisers, however, and employees concerned about the taxable status of their compensation payments should always consult a suitably qualified person such as an accountant. It is also important to note that settlement agreements will usually put the onus on the employee to cover any tax that the HMRC looks for after the agreement has been entered into.

Click here for further information on what to look out for in your settlement agreement.

Get in touch to find out about our no-cost (to you) settlement agreement service.