Settlement Agreements

Settlement agreements are documents which record the arrangements agreed– usually between an employer and an individual – about leaving their employment and/or giving up legal claims against their employer.

Settlement Agreement advice for employees


If you've been offered a settlement agreement by your employer, you may feel unsure about what it means and what to do next. Settlement agreements (formerly called compromise agreements) are a common way to resolve workplace issues or end your employment on agreed terms. On this page, we explain what settlement agreements are, when and why employees might receive one, and your key legal rights. We also answer frequently asked questions in plain English – from “Do I have to sign?” to “How much should I get?” – and show how Springhouse’s expert employment solicitors can help you review, negotiate, and sign your agreement with confidence. Don’t rely on AI; speak to our expert team.

 

What is a settlement agreement?

A settlement agreement is a legally binding contract between an employer and an employee (or ex-employee) that sets out the terms for ending an employment dispute or the employment itself. In a settlement agreement, typically the employee agrees not to bring any legal claims (such as unfair dismissal or discrimination) against the employer in exchange for certain benefits.

These benefits usually include a financial payment (compensation), and often other terms like an agreed job reference or additional perks. Once signed by both parties and a legal advisor, the settlement agreement becomes enforceable, preventing either side from later changing their mind about the deal.


Key features of settlement agreements include:

  • Legally binding and in writing: The agreement must be in writing and signed. It usually specifies the exact claims you are waiving (for example, claims for unfair dismissal, redundancy pay, breach of contract, discrimination, etc.).
  • Ends disputes or employment: In most cases, signing a settlement agreement will bring your employment to an end on the agreed date. However, sometimes an agreement can be used to settle a dispute while you continue working (this is less common, but possible if there’s an ongoing issue like a bonus disagreement.
  • Compensation and terms: The document will detail what payments you will receive (such as a lump sum compensation, payment in lieu of notice, accrued holiday pay, or bonus). It may also include other terms like a promise to give you a reference for future jobs, and clauses about confidentiality or not making derogatory statements about each other.
  • Waiving rights: By signing, you waive your right to bring certain (all) legal claims against your employer in the future (for example, you agree not to pursue an employment tribunal claim about the issues covered by the agreement.) Some rights are usually carved out and are not waived – for instance, future personal injury claims you didn’t know about, or your entitlement to any accrued pension – but essentially the agreement protects the employer from lawsuits over the matters specified.
  • Independent legal advice is required: Importantly, a settlement agreement is only valid if you have received independent legal advice on it. This is a legal safeguard to ensure you understand what rights you’re giving up. It means you’ll need to speak with an independent and qualified legal adviser (usually an employment solicitor) who will sign an advisor’s certificate in the document. (Don’t worry – in most cases your employer contributes to your legal fees, so getting this advice won’t leave you out of pocket. We explain more about legal costs in the FAQs below.)


Settlement agreements are voluntary – you don’t have to sign one if you don’t want to. They are usually reached through discussion and negotiation, rather than imposed. Every agreement is tailored to the individual situation, so no two are exactly alike. As employment law specialists, we see settlement agreements used in a wide range of scenarios, but the goal is always to give both sides a clean break with certainty about the outcome and future.

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Why have I been asked to sign a settlement agreement?


Employers use settlement agreements for several reasons, but often to resolve issues quickly and avoid legal complications. If your employer has asked you to sign a settlement agreement, it’s likely because they want a quick, amicable resolution to a situation that would otherwise be uncertain or contentious. Common situations include:

  • Redundancy or restructuring: If your role is at risk of redundancy, your employer might offer you a settlement agreement (sometimes with an enhanced redundancy package) to avoid going through a formal process. By doing so, our employer ensures you won’t bring a claim for unfair dismissal or consultation failures, and you receive additional compensation for leaving.
  • Workplace dispute or grievance: Perhaps you raised a grievance about bullying, discrimination or another serious issue, and it hasn’t been fully resolved. Rather than prolonging the dispute, your employer might propose a settlement so that you can leave with compensation and both parties avoid an employment tribunal.
  • Performance or misconduct allegations: If you’re facing disciplinary action or performance improvement plans, a settlement agreement can be a way for the employer to terminate your employment without having to follow lengthy and formal procedures. In return for you agreeing to depart quietly (and not pursue any claims), your employer may pay you a sum and possibly provide a neutral reference.
  • Long-term sickness or mutual parting of ways: In some cases, if you’ve been on long-term sick leave or there’s been a breakdown in the working relationship, a settlement agreement offers a dignified, mutually agreed exit. It gives you financial security and allows you to move on, while your employer knows there will be no future dispute or claims.
  • In essence, your employer is asking you to sign because it wants certainty that you won’t sue, and in return it is willing to give you something of value (usually, financial). It’s often described as a “clean break” for both sides. For you, it can bring closure and a financial cushion; for your employer, it buys peace of mind that no legal claim will arise.


Remember: you cannot be forced to sign a settlement agreement. It should be a genuine agreement. However, if you decide not to sign, the alternative might be that your employer follows through with a dismissal (redundancy or gross misconduct) anyway and you wont secure the extra benefits unless you sue. That’s why it’s crucial to evaluate whether the offer is fair – and negotiating for a better deal if needed – before making your decision.

 

Do I have to sign a settlement agreement?


No, you do not have to sign a settlement agreement if you feel it’s not in your best interests. Signing is entirely voluntary. You should never feel pressured into indicating you accept on the spot. In fact, under good practice guidelines, you should be given a reasonable period to consider the offer (10 days is recommended by ACAS as a minimum period to review and get advice.


If you choose not to sign the agreement, you retain all your legal rights to bring claims against your employer through an employment tribunal or civil court. For instance, if you believe you were unfairly dismissed or discriminated against, you could proceed by submitting a claim instead of settling. Be aware that there are strict time limits for taking legal action – typically 3 months (less one day) from the date of dismissal or discriminatory act. So if you reject a settlement and plan to claim, you must act quickly and get legal advice on the next steps.


Not signing a settlement agreement might mean walking away with nothing beyond your basic statutory or contractual entitlements. In contrast, a settlement agreement usually offers a negotiated payment or benefit that you wouldn’t get if you simply resigned or were dismissed without any agreement. Therefore, it’s a balance of weighing the guaranteed compensation now against the prospects of winning a larger sum later through a legal claim (which can be uncertain, costly and time-consuming).


Important: Even if you initially decide not to sign, it’s wise to take legal advice on your position. An employment solicitor can assess the strength and value of any claims you have. Sometimes, the act of engaging a solicitor and letting your employer know you are prepared to litigate can lead to a better settlement offer. Conversely, a solicitor might advise you that the offer on the table is actually a good one given the circumstances. Either way, you’ll be informed so you can make the best decision for you.

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Can I negotiate the terms of a settlement agreement?


Absolutely – you can (and often should) negotiate the terms of a settlement agreement before signing. In many cases, the first offer your employer makes is not necessarily the final offer. Employers often expect some negotiation, especially if the initial terms aren’t particularly generous. You do not have to accept the first draft presented to you without question. However, be aware that by making a counter-offer you are technically rejecting your employer’s offer, which means your employer may decide not to re-state that offer and it goes forever.

Here are some tips and points to consider when negotiating your settlement agreement:

  • Don’t rush or feel pressured: As mentioned, you should have some time (10 days or more) to consider the offer. Use this time to identify what you want improved. Do not feel you must sign immediately, even if your employer suggests there’s a tight deadline. It’s in their interest to conclude matters quickly, but you have the right to proper consideration and t take independent legal advice.
  • Review all clauses with your solicitor: Your independent legal advisor will go through the agreement with you. They can explain what each clause means and whether it might be harmful or unfair to you. Often, clauses can be amended. For example, if there’s a particularly broad confidentiality clause or a restrictive covenant that could limit your future job prospects, your solicitor can negotiate to narrow or remove it.
  • Identify what’s missing or needs improvement: Are all payments you’re entitled to included? Check that your notice period is covered (either you’re allowed to work it or you get a payment in lieu of notice), and any owed holiday pay, bonuses, or expenses are accounted for. If you were part of a redundancy round, does it include the proper redundancy pay? If not, that should be added or corrected. Also consider asking for an agreed reference letter if one isn’t already attached – this can be very valuable when job hunting.
  • Focus on the compensation amount: This is usually the big ticket item. Is the settlement sum being offered fair given your circumstances? There’s no fixed formula for how much a settlement should be, but it should reflect things like the strength of any legal claims you’re giving up, your length of service, your salary/benefits, and how long it might take you to find a new job. (More on “how much should I get?” is discussed in the next FAQ.) It’s common to negotiate for a higher payment, especially if you have leverage such as a potential unfair dismissal or discrimination claim. Your solicitor can help estimate a reasonable figure to aim for.
  • Consider tax efficiency: Normally, the first £30,000 of a compensatory settlement payment can be paid tax-free (as long as it truly compensates for loss of employment and isn’t contractual pay)[5]. You must ensure any notice pay is separated out (since notice pay is taxable). Your accountant can advise on this.
  • Negotiate non-financial terms too: Money is key, but also look at other terms. For instance, if there’s a clause preventing you from saying anything bad about your employer (a non-derogatory clause), you might want that to be mutual – so your employer cannot bad-mouth you. If there are restrictive covenants (e.g. not poaching clients or working for competitors for a period), perhaps you can negotiate them down to a shorter duration or remove them if they weren’t in your original contract. Everything is theoretically up for discussion.
  • Get any changes in writing: If you and your employer agree on changes, these should be incorporated into an updated written agreement. Do not rely on verbal assurances. The final document needs to reflect all agreed amendments before you sign, as the final version will override any prior promise/agreement.


Having a specialist settlement agreement solicitor negotiate on your behalf can significantly improve the outcome. Our team at Springhouse are experienced in handling these negotiations professionally. Often, just the fact that you have a solicitor advocating for you will encourage the employer to increase it’s offer or concede on problematic terms. We regularly manage to secure better compensation packages and terms for employees – whether that’s more money, shorter restrictions or removal of onerous clauses – while keeping the process constructive so that an agreement is still reached.

 

How much should I get in a settlement agreement?

  • There is no one-size-fits-all answer to this, as the appropriate amount of compensation in a settlement agreement can vary hugely depending on your situation. However, there are some general guidelines and factors that might help determine what is reasonable:
  • Your length of service and earnings: A basic starting point is often how much income you stand to lose. For example, a simple unfair dismissal settlement for someone with a steady work record might be in the ballpark of a few months’ salary. One external analysis suggests that between two and three months’ gross salary is about average for straightforward cases. This would cover lost earnings for a typical period of job hunting. If you’ve been with the company a very long time or have a large contractual notice period, the figure might be higher to reflect that.
  • Strength of legal claims: If you have potential claims like discrimination or whistleblowing, these can significantly increase the value of a settlement. Why? Because such claims have no statutory cap on compensation in tribunal and can be costly for your employer to defend while also damaging to its reputation. As a result, settlement amounts in cases involving serious discrimination or whistleblowing allegations are often much higher than the “a few months’ pay” average – employers might pay a premium to avoid those cases[6]. On the other hand, if the reason for ending your employment is a fair redundancy or a clear-cut misconduct case (with little chance you’d win a tribunal claim), your leverage is less and the settlement offer may be closer to minimum entitlements.
  • What you’re already entitled to: A fair settlement should include any money you are legally owed anyway, such as unpaid wages, accrued holiday pay, any bonus or commission that’s due, and statutory redundancy pay (if applicable). Often the settlement will roll these in, plus an additional ex-gratia sum on top as compensation for you waiving your rights. Make sure the offer isn’t simply repackaging your basic entitlements – the “compensation for leaving” should be an extra amount for your agreement to settle.
  • Loss of benefits and other costs: Consider if you are losing valuable benefits – for example, private health insurance, a company car, or stock options. If so, you might negotiate a higher amount to cover the loss of these perks (or ask for some benefits to continue for a transitional period). If you have shares or share options, the agreement should clarify what happens to those and ideally compensate you if you’re forced to give them up.
  • How badly you were treated / aggravating factors: In an employment tribunal, certain kinds of poor treatment can attract additional awards (for instance, injury to feelings in discrimination cases, or aggravated damages if the employer behaved especially badly). While settlement agreements don’t itemise these in the same way, if you have evidence of especially bad treatment, you can use that as leverage for a higher payout. Essentially, ask yourself: what might a tribunal award me in total if I won? That sets an upper boundary from which you should minus the cost, risk and hassle of litigation. Your solicitor can help estimate this. Then a reasonable settlement would typically be a bit less than that – a bird in the hand for you, and a saving of time/expense for the employer.
  • Time to find a new job: Another practical way to judge the offer is to break down the compensation by your weekly or monthly pay. For example, if the settlement money (excluding your normal entitlements) equals, say, 8 weeks’ pay, consider whether 2 months is a realistic timeframe for you to secure new employment. If you think it might take longer (due to the job market or your personal circumstances), you might aim for more. Essentially, the money should ideally tide you over for a reasonable job-search period given your role and industry.


Keep in mind that a settlement is often a compromise – you likely won’t get as much as you might “win” in a best-case tribunal scenario, but you also avoid the uncertainties, stress, cost and wait associated with legal action. Also, up to £30,000 of a genuine compensation payment is usually tax-free, which means a £30k settlement nets you the full £30k (whereas if that were salary paid over time, income tax and National Insurance would be deducted). Amounts above £30k and any normal notice/holiday/bonus pay will be taxed as income. This tax advantage is worth considering when judging the offer’s adequacy.

 

Bottom line: “How much should I get?” is something only really an expert can give you bespoke advice on after learning the details of your case. Springhouse’s solicitors regularly assess settlement packages – we can quickly tell you if an offer is way too low and help you negotiate upwards, or if it’s in a fair range. We can also advise on non-monetary improvements that add value to the deal. The goal is to ensure you aren’t underselling your rights. If you’re unsure about the sum you’ve been offered, contact us and we’ll be happy to discuss what a fair settlement might look like for you.

Is a settlement agreement the same as redundancy?

No – a settlement agreement is not the same as being made redundant, though the two can be related. Redundancy is a reason for dismissal (usually due to the employer needing fewer staff or closing the business). A settlement agreement is a formal contract that can be used in a redundancy situation to record an enhanced exit package, but it isn’t required for a redundancy to occur.


If you are being made redundant, your employer can follow a redundancy process and pay you any statutory and/or contractual redundancy pay you’re entitled to, without needing a settlement agreement. However, sometimes employers prefer to offer a settlement agreement alongside redundancy, especially for voluntary redundancies or senior positions. The settlement agreement in that case may offer more than the minimum redundancy pay (an “enhanced redundancy package”) and will include your agreement not to pursue claims (for example, you agree not to claim unfair selection for redundancy or discrimination). Essentially, the employer might say:


“We’ll give you above-and-beyond what we have to, if you sign this agreement waiving any claims.”


A settlement agreement can also be offered instead of a formal redundancy process. For example, rather than going through weeks of consultation and risk an unfair dismissal claim, an employer might shortcut the process by agreeing terms with you in a settlement agreement. From your perspective, this can be beneficial if it yields a good payout and a quick resolution – but you should ensure the payment at least matches what a redundancy would have given you, if not more.


Key differences: - If it’s pure redundancy (no settlement agreement), you have rights to consultation, possible redeployment, and a statutory redundancy payment if eligible. You also retain the right to sue if the redundancy wasn’t genuine or fair. If you sign a settlement agreement, you typically get an enhanced payment, but you waive your rights to challenge the redundancy or bring any employment claims. The agreement may also include extra terms like confidentiality and an agreed reference, which you wouldn’t get automatically in a normal redundancy.


In summary, redundancy is a situation; a settlement agreement is a legal tool. You can have one without the other, but in combination they often mean: you’re leaving due to redundancy and signing a contract that finalises the terms. If you’re unsure whether your offer is a standard redundancy or a settlement agreement (or both), check the documents provided or ask your employer. And remember, if a settlement agreement is involved, you’ll need to get legal advice on it – which will also be an opportunity to ensure the redundancy aspects have been handled correctly.

 

What happens if a settlement agreement is breached?


  • Once a settlement agreement is signed by you and the employer (and your solicitor has certified it), it becomes a legally binding contract. That means both parties must abide by its terms. If either side breaches the agreement – i.e., fails to do something they promised – there can be legal consequences:
  • If your employer breaches the agreement: For example, say the employer agreed to pay you a settlement sum by a certain date, but then doesn’t pay on time (or at all). This would be a breach of contract. You would generally have the right to take legal action to enforce the agreement. In practical terms, your solicitor could write to the employer reminding them of their obligations, and if that doesn’t resolve it, you could issue a claim in court for breach of contract to recover the money owed. The settlement agreement might specify the jurisdiction (often England & Wales) for enforcement. Fortunately, outright non-payment is rare, especially with reputable employers, but delays or administrative slip-ups can happen – if so, seek legal help promptly to get it sorted.
  • If you (the employee) breach the agreement: For instance, if the agreement had a confidentiality clause and you then disclose the settlement terms to an unauthorised person, or if you agreed not to disparage the company but you post negative comments online – those would be breaches on your part. Your employer could potentially take action against you. The usual remedy they’d seek is an injunction (to stop any ongoing breach, like further disclosures) and/or damages for any loss suffered, plus legal fees (which are likely to be considerable). Many settlement agreements include a clause stating that if you materially breach the agreement, you may have to repay some or all of the settlement money, and possibly cover the employer’s legal costs if they have to enforce the agreement. This is a strong deterrent against breaking the terms. So, it’s important to understand and follow any ongoing obligations you agreed to (such as confidentiality, return of company property, non-compete periods, etc.).
  • Breach of minor terms: If the breach is something minor or inadvertent (say, you slightly missed a deadline for returning company equipment, or the employer provided a reference but with a small error in it), often these can be resolved without heavy legal action – usually through a discussion or a written variation to the agreement. Both parties have an interest in avoiding litigation after a settlement, so most will try to fix small breaches amicably if possible.
  • Fraud or misrepresentation: In very rare cases, a settlement agreement could be challenged if one party was tricked or coerced into signing it. For example, if your employer lied about a crucial fact to induce you to sign (fraudulent misrepresentation) or you were under duress, the agreement might be invalidated. But these situations are exceptional and hard to prove. Generally, once signed freely with benefit of legal advice, it’s final.

 

In short, breaching a settlement agreement is breaking a contract, and normal contract law remedies apply. For employees, the biggest risk is having to repay compensation and cover your employer’s legal fees if you breach a significant term. For employers, the risk is being sued for the money plus potential interest (and possibly legal costs) if they don’t fulfill their promises. If you suspect a breach on either side, it’s best to consult your solicitor immediately to discuss the best course of action. Often a strongly worded letter can rectify the issue before it escalates.

 

Will my employer pay for my legal advice on a settlement agreement?

In most cases, yes – your employer will contribute to the cost of your independent legal advice on the settlement agreement. It’s customary (and considered good practice) for the employer to pay a fixed sum towards your solicitor’s fees. This is because the law requires you to get independent legal advice for the agreement to be valid, and employers want to ensure you can meet that requirement without difficulty.


Typically, the settlement agreement document itself will state something like: “The Employer will contribute £X + VAT toward the Employee’s legal fees in obtaining advice on this agreement.” The amount can vary, but common contributions range from £500 to £1,000 plus VAT  for straightforward agreements. This is usually enough to cover a basic review and signing-off by a solicitor.


A few important points about legal fees and settlement agreements:

  • If more work is needed: The standard contribution might cover the initial advice and signing, but if significant negotiation or revisions are required, you should discuss fees with your solicitor. Often, if your solicitor needs to spend extra time negotiating a better deal for you, they can try to get the employer to increase their contribution to cover those additional costs (especially if the negotiations are a direct result of the employer’s initial draft being inadequate). In many cases where we negotiate improvements for clients, employers do agree to increase the legal fee contribution accordingly.
  • If the contribution doesn’t fully cover it: You may be concerned about having to pay anything out of pocket. The good news is that because we at Springhouse keep our costs competitive, in most situations the employer’s contribution covers all of our fees for reviewing and advising on a settlement agreement. If you do require extra assistance (for example, lengthy negotiations or advice on complex terms), we will always give you a clear estimate of any additional cost before incurring it. And remember, if that extra work leads to a higher settlement payment for you, it often pays for itself many times over.
  • No win, no fee? Settlement agreement advice is usually not done on a "no win, no fee" basis because it’s not about winning a case, it’s about advising on a contract. However, because the employer typically pays a contribution, it effectively reduces or eliminates your cost. Always clarify with your solicitor at the start what their fees will be and what the employer’s contribution is. With Springhouse, our client care team will explain any costs upfront so there are no surprises.
  • What if no agreement is reached? If you end up not signing the agreement (for instance, if negotiations break down or you decide not to settle), who pays the legal fees then? Generally, the employer’s contribution is only payable upon completion of the settlement (since it’s usually written into the agreement). If no agreement is reached, you might be responsible for your own legal fees. However, we can sometimes secure an agreement from the employer to pay something towards your advice even if you don’t end up signing (especially if they initiated the offer). It’s case by case, but we will always aim to minimise any cost to you.

 

In summary, do not let cost deter you from seeking advice – in the majority of cases, taking advice on a settlement agreement won’t cost you anything, because the employer pays. The peace of mind and potential improvement in terms you’ll get by having a solicitor review your agreement is well worth it. Always ask your solicitor about fees and the employer contribution at the outset, so you know exactly where you stand.

 

How Springhouse Solicitors can help with your settlement agreement


At Springhouse Solicitors, we specialise exclusively in employment law – settlement agreements are one of our core areas of expertise. Our team of friendly, expert employment solicitors has advised thousands of employees on settlement agreements at all levels, from junior staff to senior executives. We understand that facing a settlement agreement can be daunting, but we’re here to make the process straightforward and to fight your corner so you get the best possible outcome.


Here’s what we offer when you come to us for settlement agreement advice:

  • In-depth review of your agreement: We will thoroughly examine the settlement agreement and explain, in plain English, what every clause means. We’ll point out any unusual or concerning terms. You’ll fully understand what you’re being asked to sign.
  • Protecting your rights: Our solicitors ensure that you are not inadvertently giving up any rights without proper compensation. If we spot that something is missing (for example, your bonus wasn’t included, or there’s no mention of an agreed reference), we’ll advise you on it. If any term could negatively affect you – such as an excessive non-compete restriction – we’ll flag it and seek to amend or remove it. Our goal is to protect your future position as you exit your job.
  • Strong negotiation on your behalf: Springhouse has a track record of negotiating improved terms for employees. Whether it’s securing a higher financial payout, negotiating better term, getting a better reference, or adding clauses to protect you (like mutual confidentiality or non-disparagement), we know how to negotiate with employers (or their lawyers) effectively. We will discuss with you what a successful outcome looks like and then work strategically to achieve it. Many employers are willing to increase their offer when they see a reasoned argument from an experienced employment solicitor. We’re not afraid to push for what’s fair.
  • Fast, efficient service: We understand that settlement agreements often come with tight timelines and that you’ll want to resolve things quickly so you can move on. Our team will usually be able to review your document and arrange a consultation with you within a short timeframe of you contacting us. We’ll keep the process moving and handle communications with your employer for you, to reduce your stress.
  • Cost-effective advice (often covered by employer): As discussed above, in most cases our fees are covered by your employer’s contribution, meaning you don’t pay us anything personally. Where that’s not fully possible, we’ll let you know in advance and keep any additional costs to a minimum. We never charge beyond the agreed scope without your say-so. Basically, we make it as easy as possible for you to get quality legal advice.
  • Approachable and supportive team: We pride ourselves on being friendly and approachable while maintaining the highest professional standards. We know that job losses or disputes can be stressful and emotional. Our solicitors will listen to your concerns, answer all your questions, and give you candid, pragmatic advice. We’re on your side and will support you through to the conclusion, whether that’s signing the agreement (on improved terms) or deciding not to sign if it’s not right for you.

 

By entrusting Springhouse with your settlement agreement, you’ll be equipped with expert guidance and an advocate who will ensure you get the best deal possible. Our aim is to maximise your settlement benefits and give you peace of mind, so you can confidently take the next step in your career.

If you have been offered a settlement agreement (or even just think one might be coming your way), contact our team today for tailored advice. We’ll quickly let you know how we can help and what your next steps could be. Get in touch with Springhouse Solicitors by calling 0800 915 7777 or emailing hello@kilgannonlaw.co.uk. You can also fill in our online enquiry form, and we’ll call you back at a convenient time. Let us handle the legal complexities while you focus on your future. We’re here to ensure you get the outcome you deserve.

(All advice is provided in accordance with the laws of England and Wales. Springhouse Solicitors (part of Kilgannon & Partners) has offices in London, Chichester, Croydon, Twickenham, Winchester and Woking – we’re ready to assist wherever you are.)