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WHAT IS A SETTLEMENT AGREEMENT? FACTSHEET & ADVICE FOR EMPLOYEES

To begin with, what is a Settlement Agreement? A Settlement Agreement is a legally binding contract between you and your employer and it usually provides for the payment of compensation to the employer in exchange for their agreement not to file a claim in court. As a general rule, the employer will ask you to keep the terms, such as the amount and circumstances surrounding the termination of the contract, confidential.

  1. Why do I need a solicitor?

An agreement waiving the right to apply for employment can only be legally recognized if it is signed by a solicitor, a trade union, or an authorized adviser.

An employment solicitor will advise you on the merits of your claim and the amount you are likely to receive in Employment Tribunal.

An employment solicitor will also identify any discrimination against you that you are not aware of. For example, you may be disabled and protected by the Equality Act and, therefore, have the right to a reasonable adjustment before being dismissed. In these cases, there will be not only an unfair dismissal claim but also an amount awarded for non-pecuniary damage.

  1. Why do employers use settlement agreements?

Employers will propose a Settlement Agreement when they wish to terminate the agreement under the terms you have agreed. This is so that there is a clear break without the ability to bring them to justice in order to get more money.

There are various scenarios where settlement agreements are used and they usually apply when the employer does not want to follow what could be a long and lengthy process, such as a performance review or a full layoff process before they can complete it. In addition, when you already have discrimination issues or have filed a complaint, your employer may want to circumvent the claim for implied termination and / or discrimination.

  1. What is the difference between a Settlement agreement and Compromise agreement?

Under the new settlement agreements, discussions regarding the offer of such an agreement cannot be used in ordinary unlawful dismissal action unless inappropriate behavior is employed by the employer.

  1. Can I refer to the settlement agreement offered to me if I reject the offer?

If you can claim any discrimination on the basis of “protected characteristics”, such as age, disability, maternity, pregnancy, race, religion or belief, gender or orientation, sexual abuse, or if you are subject to automatic unfair release of health and safety issues, and “unofficial” documents can get the attention of the Labor Court.

In addition, if your employer had “inappropriate behavior”, you cannot keep these offers and negotiations confidential. Inappropriate behavior covers a number of situations, including unnecessary pressure on you. For example, all forms of harassment and abuse, all forms of victimization and not allowing a reasonable time to decide if you accept the offer of a settlement agreement.

 

  1. Can my employer threaten to fire/dismiss me if I do not accept the Settlement Agreement?

The threat of dismissal before any disciplinary action is initiated, should the settlement agreement be rejected, also constitute inappropriate conduct and will be announced in court. Most likely, you want to file a complaint about this type of behavior that, if not confirmed, could result in your resignation and unjustified implied termination of employment.

  1. What are the usual payments?

  • Notice payment: The Settlement Agreement will process your notice payment if it fails. If you do not have a contract or if your contract does not contain a provision that your employer can make a payment in lieu of notice (PILON), then your employer can pay your notice in gross amount. There is no additional cost to your employer as this money would be paid to HM Revenue and Customs.

It is important for your solicitor to check the contract to ensure that you receive the maximum amount as effectively as possible. In addition, as is customary to provide the employer with a tax refund to the employer in the Settlement Agreement, you should be aware of the tax that you would expect if HMRC raised the issue of payments made under this Agreement.

  • Compensation for loss of office: The settlement agreement will establish a full distribution of payments to you and will also indicate whether the amounts will be paid tax-free. Payment of up to £ 30,000 can be made without tax deduction if it is an ex gratia payment (compensatory payment instead of contract).
  • Bonus and commission: If you are entitled to bonuses or commission, the amounts due must be specified in the contract. A solicitor must confirm your contract to ensure that all bonuses and commission are paid in full.
  • Pension: Your solicitor should inform you of further loss of pension, especially if you have a final salary pension. Unless otherwise stipulated in the contract, pension contributions must continue during the notice period. If you have a contract with your employer to pay a lump sum of your pension under the terms of the agreement, then you can receive paid free of tax.
  • Medical and life insurance: Some plans will allow you to stay for the period paid by your employer. Other plans will require this benefit to expire on the last day of employment. However, it is always good to know if the insurer will offer better terms if you stay on schedule in person after the contract is concluded if there is no termination. This can be explored before the end date.
  1. Is the amount offered by your employer fair?

Your Solicitor should review the various amounts suggested in your Settlement Agreement and state if this is a good deal. This will be based on the facts regarding the employer’s desire to terminate the contract. Your solicitor should tell you if you have a serious claim if you are filing your case with a court and calculate what you would receive if you filed your claim in court in relation to what was proposed in the Settlement Agreement.

When the proposed amounts are satisfactory or when you ask your solicitor to sue despite the fact that you could get more in court, your solicitor will sign a Settlement Agreement to ensure a quick settlement of the amounts offered.

If your solicitor tells you that the money is not enough and indicate that you are receiving the most money possible, he or she will negotiate on your behalf to ensure that a fair amount is paid. This may mean that your solicitor helps you file an appeal. It is important to file a formal written complaint to protect your position in the event of discrimination. If dismissal has occurred, your solicitor will assist you in the appeal.

  1. Reference

When you are at odds with your employer, it is a good idea to request that a contract reference be included with a clause that the employer cannot revoke from this agreed reference.

  1. Post-termination covenants

A settlement agreement may reaffirm restrictive agreements after the termination of the contract. Your solicitor should check that your employer has not increased your reach. When a settlement contract is proposed for a serious breach of contract, your solicitor must let you know if your employer can still enforce the original restrictive covenants. The value of restrictive agreements for your employer will also help your solicitor evaluate the fairness of the amounts suggested in your settlement.

  1. Confidentiality

A confidentiality clause is an extremely important part of a settlement agreement for your employer. However, sometimes it is necessary to reduce the scope to allow you to talk to people close to you, such as your spouse or immediate family, or to inform prospective employers of the circumstances of your departure.

There may also be clauses that prevent you from making derogatory remarks against your employer. These can be modified to become mutual clauses, preventing your employer from denying you.