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Martin Searle Solicitors

FAQs: Settlement Agreements For Employees

Our expert Settlement Agreement solicitors answer some common questions from employees on Settlement Agreements.

  1. What does a “protected conversation” mean?
  2. How long do I have to decide whether I want to accept the Settlement Agreement?
  3. Do I need a solicitor?
  4. What should I expect from my solicitor?
  5. What is a fair settlement offer?
  6. How much will it cost me to seek legal advice?
  7. Why am I being asked to sign a Settlement Agreement?
  8. Can I tell anyone about the Settlement Agreement?
  9. Can I pick my reason for leaving?
  10. Can my notice be paid tax-free?
  11. Can my employer impose new post-termination obligations?
  12. What can I expect from my solicitor?
  13. How long does it take for a Settlement Agreement to be concluded?

What does a “protected conversation” mean?

A “protected conversation” allows you and your employer to have confidential pre-termination settlement discussions without either of you being able to use the discussions against the other in any subsequent unfair dismissal proceedings. However, this protection only applies to ordinary unfair dismissal claims, not any other claims such as discrimination. Furthermore, the employer loses the protection if they behave improperly in the conversation, for instance, by putting undue pressure on you to sign.

How long do I have to decide whether I want to accept the Settlement Agreement?

According to Acas guidance employers should give employees a minimum of 10 days to decide whether they want to accept a Settlement Agreement. Your employer should not demand that the Agreement be signed straight away. This may be seen to be undue pressure and could be used to show that your employer has acted improperly.

Do I need a solicitor?

The law says you can’t sign a Settlement Agreement without having taken the advice of a qualified lawyer, certified trade union official or advice centre worker. All of these advisers must be covered by indemnity insurance and should be specialists in settlement agreements.

What should I expect from my solicitor?

The Settlement Agreement solicitor will look at the background of the Settlement Agreement given by your employer and advise you whether you are being offered a suitable amount of compensation. They should refer to your contract of employment to calculate the correct notice and see if the compensatory sum covers an appropriate amount. If any bonuses are due, they should look at this and also work out any appropriate redundancy payments. Much of the Settlement Agreement is written in legalistic language and refers to various issues that can look very onerous to those without legal training. It is important that your solicitor explains the legal ramifications of signing a Settlement Agreement including the legal warranties you are entering into, such as a confidentiality clause, and the penalties for breaking any of these warranties.

What is a fair settlement offer?

This will depend on the circumstances surrounding the offer of the Settlement Agreement. We would go through the background with you to find out what potential claims you may have against your employer, how strong they appear to be, and how much they may be worth. This is in order to establish whether the sum offered compensates you sufficiently for the legal rights that you are giving up. Another consideration in deciding whether to accept an offer is how quickly you think you will find another job. This is because any compensation that you might receive in an Employment Tribunal would be based on your actual loss of earnings.

How much will it cost me to seek legal advice?

The Settlement Agreement should normally cover the amount that it would cost for a solicitor to sign it off – usually £300.00 to £500.00 + VAT. This is normally sufficient for a simple sign off but not for detailed advice or negotiations. If there are issues still to be determined and the amount offered is inadequate then the solicitor should try not only to increase the compensation, but also your employer’s contribution for the additional legal advice. Obviously, if your solicitor is negotiating a higher settlement then this is usually something that your employer expects you to pay for yourself.

Why am I being asked to sign a Settlement Agreement?

When you sign a Settlement Agreement and accept its terms, you lose your right to make a claim against your employer in a Court or an Employment Tribunal. This means you should resolve all issues within the Settlement Agreement, including any bonuses due and accrued but untaken holiday. The only exception to this is where an employer offers a Settlement Agreement but has misrepresented the facts to you and the circumstances as to why they want you to sign it. For example, they have told you that your job is redundant when it is not and you have evidence that you have been replaced. This is called “fraudulent misrepresentation”.

Can I tell anyone about the Settlement Agreement?

Nearly all Settlement Agreements include a standard confidentiality agreement. Sometimes this only covers the terms of the amount offered in the Agreement. However, in some cases it covers the existence of a Settlement Agreement which means you must not tell anyone that this is the way in which you have agreed to terminate your contract. Usually you can agree exceptions to this rule so it does not apply to immediate family, spouse and professional advisers. Where people are aware that you have a dispute or claim against your employer, it is important to look at what sort of confidentiality agreement has been offered to see if this is appropriate.

Can I pick my reason for leaving?

The Settlement Agreement is confidential and you will not be able to disclose its terms to any third parties except for the normal exceptions which include your immediate family, professional advisers, insurers and HMRC. If there is a genuine redundancy situation, or there is a possibility of a redundancy situation, you may be able to ask your employer to specify the reason for leaving as redundancy. This may then be disclosed to your mortgage company for the purpose of being able to make a claim on your mortgage protection insurance policy.

Can my notice pay be paid tax-free?

If there is a payment in lieu of notice clause in your employment contract this will be subject to tax and national insurance contributions. If there is no payment in lieu of notice clause in your employment contract your employer may agree to pay this gross. There is a small risk that HMRC may deem this payment to be taxable if your employer normally makes these payments as an automatic response to termination. You will normally be required to agree to be responsible for any further tax or national insurance contributions that are due. It is therefore important that you are clear about the tax position if you are being paid notice as a gross sum.

Can my employer impose new post-termination obligations?

These can be introduced in a Settlement Agreement. However your employer should provide a separate payment for any new restrictive covenants. Whether they are enforceable will depend on whether they are reasonable and whether your employer has a legitimate business interest to protect.

What can I expect from my solicitor?

Your solicitor should advise you as to whether entering into the Settlement Agreement is the best outcome for you. If it is not they may need to draft a grievance on your behalf and put forward a larger counter offer than the amount of compensation already suggested. They will check the warranties are reasonable and advise you as to whether any further tax is due from you.

It is important that you instruct a specialist employment law solicitor. They should have experience of running tribunal cases so that they provide expert advice so you can make an informed choice about whether to accept this Settlement Agreement, or not.

How Long Does It Take for a Settlement Agreement to be Concluded?

This depends on how straightforward the issues are. If the compensatory sum is generous and over and above your statutory and contractual rights, we can finalise your Settlement Agreement within days.

If we advise that changes need to be made to the wording of the Settlement Agreement, this needs to be sent to your employer and we are dependent on the speed of their response.

If the amount offered is clearly insufficient, then we can go back to your employer to negotiate more money. In many cases we advise that you raise a formal grievance to put pressure on your employer. The timescale will then depend on the reasonableness of your employer in increasing your compensation.

Only you can decide whether you wish to sign the Settlement Agreement for a lesser sum, or whether you want to hold out so that we can increase your compensation or make sure that all your contractual rights have been included, such as bonus, pension contributions, car allowance, etc.

If you wish to seek advice on whether to accept the Settlement Agreement offered by your employer, please contact us here.

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