Settlement Agreement Solicitors
A Settlement Agreement is a form of a contract which is legally binding between employee and employer and is signed at the termination of employment and will serve to set out the full terms of the agreement between the parties.
The agreement on termination normally provides for payments and these may include payments for a notice period, a tax free payment, redundancy, any bonuses payable, holiday pay and any other sums agreed in relation to for instance pension and/or medical insurance cover. In signing such an agreement and receiving the payments the employee contracts and agrees not to bring any legal claims against the employer and these may include claims for unfair dismissal, breach of contract or discrimination. Once signed by the parties the parties will not be able to go back and reopen the agreement save in exceptional circumstances of, say, latent personal injury claims which the employee did not know about at the time of signing the agreement.
Settlement Agreements: The Procedure
The procedure for agreeing a settlement agreement is set out in statute and any such agreement between employee and employer will be binding in law.
It is absolutely paramount that you take independent legal advice before you sign such an agreement. At Lovell Chohan Solicitors we have specialist employment Lawyers who are able to provide such advice to you and sign the adviser’s certificate for you. Signing of the adviser’s certificate is a prerequisite in making the agreement valid and binding in law.
The Benefits of signing a Settlement Agreement
The benefit of signing a settled agreement provides certainty and an amicable end to employment between an employee and employer. You as an employee will have the comfort of a settlement agreement setting out the financial settlement that you will be receiving together with any other matters including an agreed reference. Likewise, the employer will have the guarantee of knowing that once this agreement is signed that it will not be subject to a future claim by an employee. Employers will always use a settlement agreement notwithstanding that the employer has followed a fair process of termination and/or the employment has ended on an amicable basis.
Settlement agreements are usually offered either during or after employment and are structured so as to avoid a lengthy redundancy, disciplinary or performance related investigations. Lengthy investigations cost the employer valuable time and costs and often lead to more acrimonious issues arising between employee and employer.
If there is an existing dispute then the employer can bring that dispute to an end by entering into a settlement agreement with the employee. Often, when there is no issue of an employee bringing a claim an employer may nevertheless still enter into a settlement agreement as a method of ensuring that the employee will not be able to raise any further issues or claims in the future. By doing so this does not necessarily mean that the employer considers that the employee has a potential claim but the employer enters such a settlement agreement to ‘tidy’ matters up and ensure a clean, swift and an enforceable end to the contract of employment.
The Employee's Rights
An employee is always entitled to refuse entering into a settlement agreement and must not enter into one unless he or she has received full and proper advice on the agreement. It is a requirement of a settlement agreement that you receive independent legal advice and that the adviser signs and adviser’s certificate. Without such a certificate being signed by the adviser the agreement is not binding in law.
In any settlement agreement there are terms such as without prejudice and subject to contract. This is simply illegal jargon which means that any documents marked without prejudice cannot be used in any subsequent court or employment tribunal hearings as evidence. Subject to contract essentially refers to the agreement not being binding until such time as there is a signed contract of the settlement agreement. This is designed to prevent either the employee or the employer saying that an agreement has been reached notwithstanding that there is no signed settlement agreement.
Often an employee is given a settlement agreement without notice usually where the employee’s performance is in question and the employer wants to agree a settlement without going through investigating a performance process.
ACAS have prepared a statutory code of practice on settlement agreements which recommends that the employee should be given a period of 10 calendar days to consider any settlement agreement offered by the employer. However, in appropriate circumstances this can be less than 10 days. There are other guidelines given by ACAS which include ‘improper behaviour’ by an employer when dealing with settlement agreements such as placing the employee under undue pressure to agree to the settlement and may further include issues of bullying and harassment/intimidation, forcing the employee to enter into a settlement agreement.
A settlement agreement will encompass several clauses such as:
The termination date is a date when your employment ends or will end and is often dependent on what notice period the employee is entitled to.
Grounds for termination
This will be set out in the settlement agreement either as redundancy, agreement or simply put as a mutual agreement between employer and employee.
This is probably the most important part of the settlement agreement and sets out details of the compensation payable to the employee. It is often termed as compensation for loss of office. Any compensation for loss of office up to the 1st to £30,000 of compensation is paid free of deductions for tax and national insurance contributions. It is essential that an employee agrees a timeframe for the payment of the compensation and this can usually be agreed at 21 days after signing the settlement agreement. As solicitors we will review the amount of compensation you are being offered and enter into negotiations with your employer, and if possible, have the amount of compensation increased.
Often parts of the settlement agreement and or compensation are paid tax-free and it is usual for the employer to ask the employee for a tax indemnity. This simply means that you as the employee will be responsible for any payment of tax and/or national insurance should HMRC calculate that tax is due on any compensation payment.
A settlement agreement will give details of the notice period that you are entitled to and also include clauses whether you have to work throughout that notice period or not. Often employers will make a payment in lieu of notice (PILON). A payment in lieu of notice is usually a lump sum or the balance of a payment due to an employee for the notice period. Payments in lieu of notice are subject to the usual deductions of tax and national insurance contributions only if your contract of employment has a clause allowing your employer to make payments in lieu of notice. In the event that your contract does not contain such a clause then a payment in lieu of notice is usually made free of tax and national insurance deductions. At the same time as a payment in lieu of notice an employer may also place you on ‘garden leave’, which simply means that you will not have to come into work for the notice period.
Payments up to the termination date
A settlement agreement will include and provide for the payment of your salary, benefits, bonus, accrued holidays and any expenses up to the termination date. Any benefits that you may receive as an employee such as life cover or health insurance will end on the termination date unless the settlement agreement provides otherwise.
Where the employer makes contributions towards your pension these will continue to be made up to the termination date.
A settlement agreement will provide for the employee to return any of the employer’s property within a specified period. In the event that you are allowed to retain any such property belonging to the employer it is essential that this is set out in the settlement agreement.
Waiver of claims
The employer would wish to ensure that any settlement agreement entered into will prevent the employee from bringing any future claims against the employer. The agreement will set out the claims which are being waived and these will usually include unfair dismissal and/or breach of contract. It is usual for the settlement agreement to have an attachment setting out a list of relevant legislation that is being waived under which you may have the right to bring a claim. It is unlawful for the employer to waive your right for a claim in any personal injury matters which you were not aware of at the time of signing of the settlement agreement. In addition to this you are not able to waive your right to any accrued pension rights.
Warranties are in essence promises and the employee will have to warrant/promise that he or she is not aware of any circumstances which would have allowed the employer to dismiss the employee without notice prior to the signing of the settlement agreement. This is usual in circumstances where an employee is aware that he or she has been negligent, committed acts of gross misconduct and all committed some form of fraud against the employer and has attempted to cover this up and not to disclose it to the employer.
Offers of new employment
As an employee you are under no duty to disclose to your employer any offers of new employment. A settlement agreement may require you to warrant that you have not received an offer of a new job. The only reason why an employer would ask you to make such a warranty is that your future loss of earnings will form part of your damages in the event you were to issue employment tribunal proceedings and succeed. The employer may take such information to formulate the decision to pay you a lesser amount of compensation if they knew that you had already got an offer of a new job and simply leaving them to walk into a new job with the benefit of a large compensation payment.
It is essential that any settlement agreement provides for a job reference. Whilst the employer is under no legal duty to provide an employee with a reference it is advisable to agree a reference and have it attached to the settlement agreement which then becomes binding on the employer. In any event employers will usually only provide a factual reference which gives details of the employee’s job title, start date and termination date. In this sort of scenario it is essential that the employee agrees the form of a wording for a reference. It is important also to incorporate a clause that in the event any future employer requests a reference orally that such an oral reference will be given in no less favourable terms.
A settlement agreement will usually contain a confidentiality clause preventing you from discussing the terms and clauses of the settlement agreement, including the circumstances in which it was entered into. Such a clause needs to be looked at carefully so that you are able to discuss the terms with your immediate family and also allow you to inform prospective future employers for the reasons you left your employer.
Non-derogatory clauses are clauses which prevent you making any derogatory remarks/comments/statements about your employer which are disparaging. If an employer has such a clause in the settlement agreement it is essential that you also obtain a mirror clause preventing the employer making any such derogatory remarks about you.
Contracts of employment will often contain restrictive covenants, preventing you doing certain things for example working for competitors or working within a specified radius of your current employment. Restrictive covenants are usually reiterated again in any settlement agreement and the employee will need to ensure that these are no more onerous and or more restrictive than set out in the contract of employment. An employee will often negotiate the extent of these restrictive covenants.
In certain circumstances where an employee carries out regulated activities, a clause preventing the employee whistleblowing on the termination of employment will be ineffective. It is now mandatory that in any settlement agreement there should be a clause reading ‘for the avoidance of doubt, nothing precludes (name of employee) from making a “protected disclosure” within the meaning of part 4A (Protected Disclosure) of the Employment Rights Act 1996. This includes the protected disclosures made about matters previously disclosed to another recipient’
Breach of Agreement
A settlement agreement will usually provide that in the event that an employee breaches the terms of the agreement that the employee will be required to reimburse the employer some or all of the payments made by the employer to the employee and further that the employee indemnifies the employer for future costs and proceedings in the event that the employer has to recover these are payments. It is essential that this clause is looked at carefully and should be amended to reflect that the liability only arises if there is a ‘material breach’ and in any event it should not require the repayment of any sums that the employee was entitled to, such as contractual notice period payments.
Employees are not entitled as of right to have the employer pay for the costs of their legal fees in obtaining advice on the settlement agreement. An employer will usually make an offer to contribute towards the employee’s legal fees and these may range from £300 – £600 plus VAT but can be more in complicated agreements.
There will usually be a clause in the settlement agreement that you as an employee are not signing the agreement on the basis of relying on any other documents or any other verbal statements made by the employer prior to the signing of the agreement and that the settlement agreement contains all the full and final terms of the agreement reached between the parties. This is a usual clause.
The above is a simple outline of settlement agreements between employer and employees and you are advised to take detailed legal advice on each settlement agreement offered as these will often vary vastly and must accurately reflect the terms of the agreement between employee and employer.
Settlement Agreement advice at Lovell Chohan Solicitors
If you have been offered a settlement agreement and the need advice on this please call and arrange an appointment to see one of our expert employment solicitors. Unless there are special circumstances or complicated matters arising we will not charge you more than the payment being made by your employer to advise you on the settlement agreement.