Has your employer given you a settlement agreement? Since Coronavirus struck we have witnessed an increasing number of settlement agreements being offered to employees to terminate their employment.

The most common reason for offering a settlement agreement at this time is a real or alleged redundancy situation. An agreed exit might also come about because you feel you have been badly treated or where your employer, for whatever reason, wants to remove you from your post quickly and with minimum disruption.

Either party can make the first move and suggest that an exit package be agreed.

Pre-termination discussions

Any discussions about an agreed exit are usually held as a protected conversation or, if there is a dispute, on a ‘without prejudice’ basis. This means the discussion is private and shouldn’t get raised in any future court or tribunal. This enables both sides to talk freely about the problems and find a way forward.

As these exit discussions are usually private, if you have a concern about how you have been treated at work (and / or fear no exit will be agreed) you should also raise a formal grievance in accordance with your organisation’s Grievance Policy.

What is a settlement agreement (formally known as a compromise agreement)?

A settlement agreement is a legal document that, once signed, waives any claims or rights of action (usually with a few specific exceptions such as latent personal injury and pension right claims) you may have to sue your employer and any other parties named in the agreement like group companies or the employer’s officers or employees.

In return for this waiver, the employer usually pays you (the employee) a sum of money and/or gives you some other benefit – like an agreed reference, letting you keep items of company property, or releasing you from certain post-termination contractual restrictions.

The Agreement will often contain other terms to control the exit and protect the employer, like confidentiality clauses and specific warranties for you to sign. It should also specify a termination date, if it is envisaged that your employment is to come to an end.

So, you’ve had an offer or you think you want to make one. What should you be thinking about?

In summary you should:

  • Take time to think about what you want. You should expect to have at least ten days to consider any offer. Don’t be rushed into making a decision.
  • Take legal advice from an experienced employment lawyer so you know the strength and value of any likely claim you may have.
  • Consider what other leverage you have. Do you have something your employer needs like: personal ownership of any intellectual property rights; a project that needs completing; or an important connection with a client? Offering to co-operate on these may help the negotiation and get a better result.
  • Find your employment contract. This should set out your contractual entitlement to notice. In summary, your statutory minimum entitlement to notice is one week for each full year of service up to a maximum of 12 weeks for 12 years plus of a period of continuous employment, but you could be entitled to more notice under your contract of employment. If the notice period under your contract of employment is less, then your statutory rights to minimum notice override this.
  • Check your holiday entitlement. Are you going to be owed some holiday or are you going to owe some holiday? Are any other monies or benefits owed?
  • Consider the tax implications of any exit payment. Take advice if necessary.
  • Be aware of any post termination restrictions you have. Many employment contracts will place restrictions on what you can do after your employment ends. Do you need to be released from those as part of the deal?
  • Finally, plan any agreed announcement and reference as part of the deal negotiations and don’t tell anyone about your discussions with your employer (other than very close family) while you are negotiating.

Chris Morse, a Legal Executive within the Employment Team talks through some of the key issues and what you should be considering on an agreed exit or settlement agreement in this video.

Taking legal advice – what should you expect?

Once terms are agreed, your employer is likely to want you to sign a settlement agreement promptly. As this involves you surrendering your rights to make future claims, you need this counter-signed by a relevant independent adviser – a definition that includes qualified lawyers. These are extremely important documents. Proceed carefully.

Take proper specialist advice. Your employer should pay a contribution to your legal fees in this regard to reduce the cost to you – often so that you have no liability for legal costs.

Meeting with your legal advisor

During the meeting with your legal advisor you should be given the opportunity to fully explain the circumstances leading up to your proposed exit. Your legal advisor should explore with you whether you believe the reasons presented by your employer for terminating your employment are genuine or whether you believe there is an ulterior motive – for example because of your age or because you are pregnant.

Once the background situation has been explored the legal advisor should advise you as to whether you have any likely claims for which you would be waiving your rights. The legal advisor should then discuss with you whether the offered settlement is adequate compensation for you to waive your rights to the claims you might have.

If you wish to go ahead with the settlement agreement then your legal advisor will go through the terms to ensure that you understand what you are entering into and the obligations on you and your employer.

Decided to pursue the Settlement Agreement?

If you are interested in entering into a settlement agreement (whether on the terms that have been proposed or on different terms) you should make an appointment as soon as possible with our specialist employment law team to talk this through.

We are happy to meet face to face or by telephone, Skype or video conference if that suits you better. It is best not to agree any deal until you have taken legal advice.

Please do let us know if there is a date that the Agreement is to be signed by. It is helpful also for us to see a copy of your contract of employment, if you have one.

What if you don’t want to sign the Settlement Agreement?

If you already know you don’t want to sign the Agreement or you decide after taking advice that you don’t wish to, there is absolutely no obligation for you to do so. Our specialist employment law team can help advise you on your best course of action and whether you have any claim against your employer that you may want to pursue.

Do be aware that if a Settlement Agreement is not signed, your employer will not pay a contribution to your legal fees and you would need to pay them yourself. Do discuss this with our team if you have any concerns in this regard.