Settlement Agreements

Settlement Agreements

With a settlement agreement you waive your rights to raise employment-related claims against your employer. Such an agreement can be entered into at any time during your employment but is usually entered into at the end of an employment period.

Settlement agreements are entirely voluntary; you should not allow yourself to be bullied or forced into waiving your rights. If you are not satisfied with the package offered to you in exchange for waiving your rights, or if you have been promised something that is not in the agreement, you should ask your employer for the relevant changes to be made. 

Independent legal advisers will be able to highlight to you any unusual provisions in a proposed settlement agreement and can negotiate changes to the agreement on your behalf.

Frequently Asked Questions

The following are some of our most frequently asked questions when it comes to settlement agreements.

What is a settlement agreement?

A settlement agreement (formerly known as a compromise agreement) is a voluntary, written agreement under which you agree to waive your right to pursue any claim (as specified in the settlement agreement) against your employer. You may be offered a settlement agreement at any time during your employment, as the agreement may be proposed to settle a dispute or to end employment on agreed terms. It will usually be the employer who proposes a settlement agreement; however, an employee is also entitled to request one. 

Your employer will generally offer you a lump sum (known as an ex gratia payment) for waiving your rights to make a claim. This sum is usually provided in addition to any pay that you are entitled for untaken holidays, or notice pay (if your employer does not want you to work your notice they have to pay your notice period). 

Is this the same as a redundancy settlement?

A settlement agreement is entirely separate from a redundancy settlement.  A redundancy situation occurs if there is a reduced need for the organisation to carry out a type of work or if there is a workplace or organisation closure.  A settlement agreement is not tied into these situations; it may be offered to any employee at any time.  However, the result of both agreements is that you will be provided with a lump sum following the termination of your employment.

What does a settlement agreement have to cover?

The crux of the settlement agreement is that you promise – referred to as ‘warrant’ –  that you will not bring any of the claims that are listed in the agreement against your employer. You will typically be asked to waive every possible claim that you could have brought. However, personal injury claims that you are not aware of at the time of signing the agreement or latent claims that have not yet arisen can usually still be pursued, in addition to your right to enforce the settlement agreement.

What if I want to pursue a claim later?

If you have decided to sign the settlement agreement then you have waived your rights to bring a claim. The settlement agreement is a legally binding agreement; so you will be liable for breach of contract if you pursue a claim after the agreement is signed.

What is a ‘protected conversation’?

A protected conversation is a privileged discussion between an employer and employee about the termination of the employment relationship. Protected conversations are confidential and cannot be relied upon by employees for the purposes of bringing an ordinary unfair dismissal claim. However, if the conversation evidences discrimination or an automatically unfair reason for dismissal, such as whistleblowing, then the employee can rely on the conversation in the Employment Tribunal. 

My employer says I need to see a lawyer about my settlement agreement. Do I?

Yes. A settlement agreement can only be signed after you, as the employee, have received independent legal advice.  Due to the significance of waiving your right to bring a claim, you need to be advised of whether you have any possible claim against your employer and the value of that claim. The independent advisor will explain all the terms of the agreement before you sign it to ensure that you fully understand its effect.

Will I have to pay to see a lawyer?

As the employee, you must seek independent legal advice before you can sign the agreement. Most employers will offer a contribution towards the cost of you obtaining legal advice. Assuming that the agreement is straightforward, the employer’s contribution may cover all of your associated legal costs.

Will I have to pay tax on the settlement payment?

Payments of less than £30,000 can be paid free of tax and National Insurance.  The settlement agreement should state whether the payment is subject to tax. 

How can Thorntons help?

Thorntons has a specialist team who can provide you with independent employment law advice, explaining the terms and effect of any proposed settlement agreement. 

Our experienced employment lawyers can discuss your employment circumstances with you and advise you of any potential types of claim that you may be entitled to pursue before you decide to waive your rights.

Call us on 03330 430 350 to find out more about our services, or complete our online enquiry form and we will contact you.

Depending on your case and circumstances, the first step is usually to arrange an appointment to come into one of our local offices to meet an Employment Law Solicitor to discuss your situation and the way forward. We will outline your options and, depending on your circumstances, we can look at various funding options to help with your case costs.

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