The first thing to remember is that this happens very frequently, and nothing is binding until the agreement has been signed. This will usually indicate that an employer wants the relationship to be over, but this cannot happen without your agreement, by this route at least.
Why will you have been given the agreement to sign?
Settlement agreements can be offered by employers in a variety of contexts, and for a variety of reasons.
They may be offered during the progress of a grievance, or a Tribunal complaint. They may also, perhaps more frequently, be issued when performance improvement issues exist, and a performance improvement plan is being followed through. They can also be considered where there are disciplinary allegations afoot, or where a redundancy exercise is being carried out.
Off the record
In terms of the timing on which settlement agreements can be presented, this will usually be either whilst Tribunal proceedings are ongoing (in which case read our other article How much should I settle my Employment Tribunal claim for?), or in what is known as a pre-termination discussion. In both cases the subject of the conversation, if it is being properly conducted and does not involve any discrimination, will be strictly off the record and not able to be viewed by any Tribunal.
Contact a lawyer
A certificate signed by a solicitor or other legal adviser is always necessary for a settlement agreement to be concluded. There will usually be an amount in the agreement to cover your legal costs. It will usually therefore be a good idea to contact a legal adviser sooner rather than later.
Review the terms
Consider whether the agreement is worth it financially
Assess the situation and decide whether the employer could dismiss you fairly in any case. After all, it is up to you whether to sign or not.
Usually, where a performance improvement plan is in place an employer can only dismiss after fair opportunity has been given to achieve reasonable targets. This may take some time and, indeed, not be achievable. In this situation you will feel bullish about the amount of money being offered.
On the other hand, if disciplinary proceedings are afoot and the matter might end in dismissal for gross misconduct, it can be advisable to enter into the settlement agreement first. This avoids any potential poor reference in the future, because an employer should not say that they have dismissed you when they haven’t. It is open to them, however, to refer to a disciplinary process that was afoot, but this might not be reasonable if it had not been followed at all because a settlement agreement had been entered into. In situations such as these, you will be feeling less bullish about the amount of money on offer.
In terms of other financial considerations, there will usually be an amount in the settlement agreement for a payment in lieu of notice, and employees should be careful to ensure that this includes the full notice period and all benefits (such as pension contribution, private healthcare etc). There may also be an amount for outplacement counselling. Untaken annual leave will also be an important element of compensation.
The tax treatment of these payments is also an important consideration because this affects the actual value of the deal to employees. So, only truly “ex-gratia” and “non-contractual” payments will be tax-free and payments such as payments in lieu of notice and untaken holiday will usually be taxable.
Once the financial side of the offer has been considered, you should either try to negotiate this upwards, or reject the deal altogether, depending on their circumstances.
Review and negotiate non financial term
Now it is time to get into the detail of the agreement. The key things to look out for are set out in another article. The key thing is to try to resist feeling pressured into signing. Usually the employer will want to do the deal as much as you do, and high pressure sales tactics are unfortunately all too common. It is important to try to take control of the negotiation.