A Settlement Agreement is a legally-binding contract you can reach with your employer. It will usually apply to circumstances where your employer offers you a financial settlement in exchange for you agreeing not to make a legal claim against it.
It is mainly – but not always – used when someone leaves their employment.
You can read ACAS’s Code of Practice on Settlement Agreements here.
What is involved?
Signing a Settlement Agreement means:
- Your employer will commit to an agreed course of action. Typically, it will be a financial payment. But it could involve agreed measures whilst you remain employed.
- The arrangement will be in full and final settlement of any potential claims you might have against your employer.
Both you and your employer should be generally satisfied that you have reached a fair and acceptable agreement between you.
To be legally enforceable, a solicitor or other specialist must counter-sign the Settlement Agreement on your behalf. This is to confirm that you are fully aware of the consequences of signing.
Circumstances where a Settlement Agreement might well become a realistic prospect include:
- If you are threatening or have already commenced legal proceedings against your employer.
- Where your employer knows it has made mistakes in how it has treated you.
- If your employer wants to avoid protracted disciplinary, redundancy or capability (i.e. sickness absence or performance management) proceedings.
- Where your employer simply wants to settle a potential difference on good terms with you.
To maximise your chances of an attractive deal, it is important that – in correspondence and Formal Meetings with your employer – your case has been presented in the most persuasive and effective way. WRS can help you to achieve this.
If you have no leverage, there will be only limited chances of securing an attractive deal.
Achieving a good settlement
Some websites give the impression that reaching a Settlement Agreement will be easy with their support. But even if you do have a good case, the fact is that your employer is likely to only pay the minimum it can get away with.
It will be weighing-up the risk and chances of it losing a case at employment tribunal and being forced to pay you compensation. And also factoring in the time and legal costs of defending a claim.
To maximise the chances of securing an attractive Settlement Agreement, you must invest time and effort into preparing a strong case. That means setting out robust arguments at all related Formal Meetings with your employer. And being sure to carefully follow your employer’s procedures and the ACAS’s Code of Practice.
That way, when it comes to negotiating the terms of a Settlement Agreement, you genuinely will be able to apply leverage.
If your Settlement Agreement involves financial compensation for leaving your job, the first £30,000 will normally be free of any tax liability.
It could also include other provisions. These could relate to your notice period, agreed references, the option to keep company property (e.g. company car, laptop or phone), outplacement support, etc.
Your employer will also certainly insist upon a confidentiality clause. This would stop you from disclosing details to anyone else.
Settlement Agreements can often run into dozens of pages, to cover any eventuality.
To protect you from signing away your legal rights without understanding the consequences, a Settlement Agreement is only legally-binding upon you if countersigned by a professional adviser. Their role is to be sure that you understand what you are agreeing to.
The term ‘without prejudice’ will often be used during the process of negotiating a “Settlement Agreement’. It will appear in correspondence and conversations as an agreement is pulled together. This means that discussions are non-binding and confidential. Just because your employer is entering discussions does not mean it accepts liability. And neither you nor your employer are committing to anything until the final agreement is signed.
WRS can recommend a legal adviser to assist you with a Settlement Agreement. But first, workplace representation provided by WRS will help put you in the best possible position to secure an attractive deal.
Your employer will normally agree to pay your legal adviser’s costs, up to an agreed amount, for checking your Settlement Agreement.