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Settlement Agreements... what's the deal?

View profile for Amy Edwards
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You’ve been employed by Company X for 4 years. A year ago, a new manager came in and took the ropes and since then, you don’t see eye to eye. You’ve tried to meet with the manager to try and resolve matters but it’s got to the stage where you don’t feel as though you can work there anymore…what can you do?

Many employers, if a relationship with an employee is not going well for whatever reason, may consider ending that relationship, and hope to start a ‘without prejudice’ discussion with the employee to end the employment by mutual agreement by way of a settlement agreement. A common myth is that ‘without prejudice’ discussions can only be started by your employer but it can work both ways so don’t wait for your employer to approach you!

Settlement agreements are legally binding (and confidential) documents which contain the full terms of a deal agreed with your employer and usually with an ex gratia (or ‘sweetener’) payment in return for you agreeing not to bring a Tribunal or court claim. You will be required to take independent legal advice before you sign the agreement and your advisor will need to sign too, to confirm that they have given you advice.

If you are faced with a settlement agreement discussion with your employer, what can you expect by way of severance terms and what should you negotiate on?

First things first, you cannot be forced to accept the settlement agreement. However, when negotiating you may wish to consider:-

•    Contractual payments – make sure the agreement provides for your final salary payment, any accrued but untaken holiday and your notice pay (unless you are working your notice).

•    Ex gratia payment – ensure this payment compensates you as much as possible for future loss of earning until you find a new job. The first £30,000 of your payment is capable of being paid without deductions for tax and National Insurance, tax will be deducted for any sum over £30,000, so bear this is mind when negotiating…you don’t want to end up with less than you thought.

•    Extension of benefits – are you entitled to any benefits as part of your employment? If you receive a company car for example, try and extend the time for which you have it.

•    Reference – we all want a favourable job reference so make it part of the settlement agreement. Employers are not legally bound to provide a reference but by attaching it to the agreement, you have some assurance as to what this reference will look like when you obtain another job.

•    No bad mouthing – there will normally be a term in the settlement agreement to prevent your employer from bad mouthing you, (and you almost certainly will have to agree to a similar term).

•    Outplacement services  this is the assistance an employer can provide to help make your career transition easier, this can include career guidance and resume writing. All at the cost of the employer.

•    Shares – do you have any shares with the Company? If so, what are the values of those shares?

•    Bonus payment – many bonus clauses in contracts will be discretionary but it’s worth negotiating this with your employer if you normally receive a bonus or if you are missing out on one because you are leaving just before it will be paid.

•    Legal fees – your employer will, more often than not, contribute legal fees towards you obtaining advice on the agreement. Remember, the higher the fees you agree with the employer, the less you will have to pay in costs.

If you’ve been offered a settlement agreement and want specialist advice on what it means to you, the risks of entering into one, or negotiating the terms, please contact our employment team.

Otherwise…happy negotiating and remember, if you don’t ask, you don’t get!