Settlement Agreements

Settlement agreements are documents which record the arrangements agreed– usually between an employer and an individual – about leaving their employment and/or giving up legal claims against their employer.

What is a settlement agreement?

A settlement agreement can be entered into by an existing employee, an ex-employee, a worker, a consultant or even a job candidate who may have a claim against the employer in respect of their job application.

Every settlement agreement will be different as the details of every exit package will be different. A settlement agreement can be written to include whatever has been agreed between the parties.

However, when an individual is also giving up their right to bring a legal claim which they may have against the employer (such as for unfair dismissal, whistleblowing or discrimination), there are important formalities which must be observed and included in the settlement agreement.

Only qualified solicitors (and a small number of others) can produce a valid settlement agreement.

For a settlement agreement to be valid, the individual must have received independent legal advice. While it is common for an employer to make a contribution towards an individual’s legal fees to satisfy this requirement, it is not a legal requirement for them to do so.

Can a settlement agreement be disputed?

Generally, once a settlement agreement has been signed by all the parties (employer, individual and advising solicitor), we would expect everyone to follow the requirements of the agreement. Any failure to abide by the terms of the agreement – for example, if the employer failed to pay the termination payment to the individual – would result in a claim for breach of contract.

It is extremely rare for any party to dispute the agreement itself after it has been finalised. However, there may be some unusual scenarios such as where there has been fraud or duress used to get one party to agree to something, where a settlement agreement might be challenged.

Potentially, one party may have a claim for breach of warranty or misrepresentation if a matter relied upon by the other party when entering into the agreement turned out not to be true.

If a fundamental but genuine mistake came to light after the agreement had been signed, it should hopefully be possible to vary the document with the agreement of the other party, to correct the mistake.

Slightly more common, but still rare, is the situation where someone discovers a potential claim against the other party after the settlement agreement has been signed. In this situation, it is unlikely the settlement agreement will cover the new matter and so a new claim would not be prevented.

Settlement Agreement FAQs

How to negotiate a settlement agreement

If you have been offered a settlement agreement, your legal adviser can discuss the contents with you and explain the implications of signing.

It is often the case that clauses can be amended to improve the deal for you. Your legal adviser will be able to negotiate with your employer’s solicitor so that the final deal is as good as possible.

Do not be pressured into signing quickly. Ideally, you should have at least ten days to consider an offer. This will let you consider which points are important. For example, you may want to set out what you would like your employer to say about you in a reference for future jobs.

Your solicitor can advise you as to which areas of the offer could be better.

Why have I been asked to sign a settlement agreement?

A settlement agreement is a quick way for you and your employer to part company. It also gives your employer assurances that you will not bring certain legal claims against them, including claims of unfair dismissal, wrongful dismissal, and breach of contract.

If you have agreed to take voluntary redundancy, signing a settlement agreement will ensure you receive a payment in return for various undertakings. These usually include:

confidentiality
an agreement not to speak in derogatory terms about your employer
paying any tax that may be due.

Must I agree to a settlement agreement?

You do not have to agree to a settlement agreement. If you are thinking about signing, it is important to make sure you are receiving a deal that is right for you.

If you choose not to sign, you will retain your rights to bring a legal claim against your employer if your treatment has been unfair or discriminatory.

You should bear in mind that there are strict time limits for bringing a claim.

It is advisable to take legal advice even if you are not intending to sign, as your employer may try to end your employment in another way.

What is a ‘reasonable’ settlement agreement?

Whether the deal you have been offered is reasonable or not will depend on the circumstances. If you are giving up a strong claim, you will be in a good bargaining position.

The amount offered should include payment instead of a notice period, redundancy money where appropriate, and any bonus or commission you are due. It also includes money in compensation for leaving.

If you were to pursue a successful claim, a tribunal would base your award on the amount of money you lost because your employment was ended.

Consider the figure offered in light of this: work out how many weeks’ money it represents and decide whether you feel this affords enough time to find another job.

If a tribunal claim includes compensation for the way you have been treated, you can take this into account as well. It is recommended that you speak to an employment law expert who can give detailed guidance on the amount you could expect, and advise as to whether the sum offered represents a fair deal.

Accepting a settlement agreement

If you believe the settlement agreement is reasonable, you should write to your employer stating that you will accept the offer ‘in principle’ and ‘subject to contract’.

It is important to include the words ‘subject to contract’ as this prevents the deal from being effective immediately and allows you to discuss the offer with your solicitor and negotiate it to improve the terms.

Is a settlement agreement the same as redundancy?

A settlement agreement is not the same as redundancy. A settlement agreement will generally include an enhanced payment, but you will be required to give up some of your legal rights in return.

A settlement agreement may be offered if you agree to take voluntary redundancy. It means your employer will not be required to go through the lengthy redundancy process.

They will also have certain assurances from you, such as an agreement to keep matters confidential and not to speak negatively about them.

What happens if you breach a settlement agreement?

Once a settlement agreement has been signed, it is a legally binding contract. If either party does not comply with it, the other party may be able to make a legal claim for breach of contract.

The usual remedy is the award of damages for any loss suffered because of the breach. The employer may also seek to enforce the terms of the agreement.

The settlement agreement may include a clause requiring an employee to repay some or all of the settlement award if they break the agreement, as well as the employer’s legal fees.

How much do solicitors charge for settlement agreements?

The cost of advice will depend on several factors, including the difficulty of the agreement and the amount of negotiation involved. However, your employer should include a contribution towards your legal costs in the settlement agreement. This may cover most of the expense.

If you have been offered a settlement agreement and would like advice and guidance from us, we can give you an estimate of the costs involved.

Why do you need settlement agreement advice?

It is a legal requirement that an employee must receive independent legal advice before signing a settlement agreement. This is because you will waive some of your legal rights when you sign. It is important you fully understand how this will affect you.

Your solicitor can make sure the deal is fair and, where appropriate, negotiate better terms on your behalf. They can also advise you on the most tax-efficient way to deal with the lump-sum payment you will receive.

How our settlement agreement solicitors can help you

At Springhouse Solicitors, we deal exclusively with employment law. This means you will receive genuine, in-depth expertise. Our team can advise you on the contents of the settlement agreement you have been offered and suggest any improvements that could be made.

Our strong negotiators regularly secure increased financial offers for clients. We also keep costs competitive, so the advice you receive will generally be covered by the contribution your employer makes towards your legal fees.

If you would like to speak to one of our expert employment solicitors, email us at enquiries@springhouselaw.com, ring us on 0800 808 5142 or fill out our enquiry form.