You may be offered a settlement agreement before, or after, your employment has been terminated.

It will normally include details of:

• your termination date,
• any payments owed to you as a result of the termination of your employment, such as notice pay and holiday pay,
• details of any enhanced payment offered by the employer in return for you entering into the agreement and agreeing that you will not bring a claim against your employer.

What terms should be in a settlement agreement?

Although each settlement agreement will be different, there are some typical inclusions:

• A provision about payment by the employer of a lump sum, with respect to the termination and loss of employment
• A provision about how to deal with an employee’s notice period and any outstanding holiday pay
• A provision that the employer will provide the employee with a reference
• A provision that, in return, the employee will not pursue any claims against the employer
• A provision regarding confidentiality
• A provision regarding the return of company property/equipment

Why has the offer been made?

In most cases, the employer will offer a settlement agreement to conclude a dispute over the termination of your employment. It may mean your employer accepts you may have a claim against them. However, this is not always the case.

The settlement agreement may be the result of a decision to avoid the cost, work, and potential negative publicity associated with defending your case at a tribunal.

It may also be your employer’s standard practice to make an offer to any employee who leaves under specific circumstances – e.g. as part of a tranche of planned redundancies.

If you are not sure why you have been offered a settlement agreement, ask your union representative or manager. Alternatively you may want to seek legal advice.

Should you accept the settlement agreement?

If you have lost your job and your income, it can be tempting to accept an offer of a lump sum payment. Before you agree to the terms, there are number of important matters to consider.

Bear in mind: once you have agreed to the offer, it will eventually become legally binding.

Settlement agreement considerations

Is the lump sum payment offered fair?

There are formulas for calculating redundancy and unfair dismissal payments. These take into account several factors such as:

• your earnings
• your age
• how long you have worked for the employer.

You may also be entitled to payments which reflect the loss of perks and pension payments, loss of future wages and employment protection rights.

The strength of your case and risk of tribunal proceedings

You may feel that what has transpired is unjust. However, it is important to weigh up the reality of pursuing a claim at tribunal.

Claims can take a long time to resolve. It is also not certain that you will win. This can be a source of additional stress, at a time when you have already lost your job and financial security.

Your future plans

What are your prospects for getting a new job in the immediate future? Are you likely to continue working?

Finalising the agreement

Once you have agreed an offer of settlement, it must comply with certain requirements:

• It must be in writing.
• It must relate to and specify a particular complaint or proceedings.
• The employee must have received advice from a relevant independent advisor, such as a lawyer or authorised trade union representative
• Note: the advisor must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice.
• It must identify the advisor.
• It must state that the applicable statutory conditions regulating the settlement agreement have been met.

Once it complies with all the above and has been signed by both parties, it becomes binding.

Seeking advice on a settlement agreement offer

Because each case will be different, it is not possible to definitively advise whether you should agree to an offer without knowing more about your circumstances.

Ideally, you should take advice about the settlement as soon as possible. This will allow your advisor to work out what you are entitled to and help evaluate how fair the proposed agreement is.

If you are not happy with the agreement, your advisor may be able to help negotiate the terms of the agreement to ensure it is acceptable.

If you would like professional legal advice on a settlement agreement you have been offered, we can help. Our experienced employment law solicitors are experts in analysing settlement agreement offers and negotiating better terms. Get in touch today for a consultation.