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Help - I have received a Settlement Agreement

Perhaps now more than ever, Employers will seek to enter into Settlement Agreements with members of staff that are no longer going to be part of the business. This is much more than a dismissal letter and should be handled appropriately.  

A Settlement Agreement (formerly known as a Compromise Agreement) is a document where an employee agrees not to pursue certain employment tribunal claims against an employer.  As you might expect from a legal document there are certain conditions that must be met. These are:-

  • The agreement must be in writing;
  • The agreement must be signed by both parties;
  • The employee must have received independent legal advice on the agreement and in particular on its affect on their ability to purpose the statutory rights in question;
  • The legal advisor (to the employee) must be identified in the agreement;
  • The legal advisor must have insurance in relation to the advice;
  • The agreement must state that the conditions relating to Settlement Agreements in relevant legislation have been met.

What am I signing away?

Only certain statutory claims can be settled by a Settlement Agreement – a few of them (by no means all) are listed below :-

  • Claims under the Equality Act / equal pay;
  • Claims for pregnancy, paternity, sex, gender reassignment, civil partnership status, or maternity discrimination;
  • Claims for race, colour, nationality, ethic or national origin discrimination;
  • Disability discrimination;
  • Claims for harassment relating to sexual orientation;
  • Claims for religious or belief discrimination;
  • Claims for age related discrimination;
  • Claims for unfair dismissal, unauthorised deductions from wages.

What do Settlement Agreements contain?

A Settlement Agreement will usually contain the following:

  • An ex-gratia payment (or “sweetener” payment) offered to an employee not to bring an employment claim against their employer;
  • Contractual payments such as salary payments including any benefits, any accrued and untaken holiday pay and notice pay (unless an employee is working their notice);
  • Processes to manage the return of Company property;
  • Address any restrictive covenants that may continue, post the termination of employment;
  • Provisions of an agreed reference for a prospective new employer.

Who will pay my Legal fees?

There will be a provision in the agreement that the employer will contribute towards the employee’s legal advice.  Not surprisingly, many employers want to provide a nominal figure and will expect the employee to make up any difference. 

Sometimes if the agreement is badly drafted or there needs to be some degree of negotiation about the contents, legal fees can rack up.  There has been much legal debate regarding employer’s cost contributions in Settlement Agreements.  Recently the Employment Appeal Tribunal considered the contribution of an employer of £500.00 plus VAT in the case of Solomon University of Hertfordshire. HHJ Richard at paragraph 110 of the judgment stated that whilst £500.00 plus VAT might be enough to cover advice on the “terms and effect” of the proposed Settlement Agreement it was “wholly unrealistic” for a solicitor “to advise on the merits of the Claimant’s claim and likely award of compensation” for that amount which “would require reading and considering on quite a different scale”.

We  hope you can see from the above that there is more to a settlement agreement than a simple read and signature. We have helped many people deal with their settlement agreements, if we can help you, please get in touch.