A Settlement Agreement, previously known as a Compromise Agreement, is an agreement whereby two parties (an employer and an employee) agree on the terms of settling a potential employment tribunal claim (or other Court Proceedings) or simply set out the termination of the employment contract.
They are traditionally offered by an employer to an employee on termination of employment thus offering the employer the reassurance that following the employee’s departure, the employee with not take any action against the employer.
The employee will be offered some form of ‘compensation’ for entering into the settlement agreement.
What Terms Does a Settlement Agreement Include?
- a sum to be paid by the employer to the employee
- the date any money is to be paid by/ schedule for payment by instalments
- a prescribed reference
- provisions as to which party will pay any tax due on the agreed sum;
- a confidentiality clause namely that neither party may discuss the terms of the settlement with anybody other than, for example, lawyers
- a clause stipulating that neither party is to make derogatory remarks about the other;
- a clause preventing the employee from pursuing the present claim or bringing any further claims
- Employer Pays for legal advice
In order for the settlement agreement to be effective, the employee must receive advice on the terms of the agreement from a solicitor, in particular, its effect on the employee’s ability to pursue action through an employment tribunal.
Employers will pay a sum towards the employee’s legal advice fee. The total fee incurred by the employee can vary depending on location, seniority and the business sector in which the employees work and the complexity of the settlement terms.
In some cases, the amount offered by the employer will not be sufficient to cover the cost of the solicitors time spent providing the necessary advice and the employee will need to take this into account when assessing the overall deal offered by the employer.
Here are Parker Arrenberg Solicitors we always strive to provide the necessary advice to our employee clients for the same value paid by the employer!
What to expect when negotiating a Settlement Agreement?
Our lawyers at Parker Arrenberg will discuss and advise on the following issues;
Payments in lieu of notice: The right to notice under the contract of employment means a right for the employee to remain in employment for the period of notice, not simply to be paid for it. An employer will therefore often include in the contract an express right for the employer to make a payment in lieu of notice (‘PILON’) as an alternative to giving notice, to ensure the employer has the option of terminating the employee’s employment and removing the employee from the workplace at any time.
Contractual benefits: The employee will want to ensure that he or she will receive all contractual benefits accruing up to the date of termination of employment and if he is not working his notice period, a payment in lieu of those contractual entitlements for that period. It is therefore usual to include provision for this in the settlement agreement.
Holiday entitlement and pay in lieu: An employee may have untaken holiday entitlement at the date of termination of employment which should be paid for under the term so of the Settlement Agreement.
Statutory and contractual redundancy payment: An employee is entitled to a statutory redundancy payment where: they have been continuously employed for not less than two years or the employee has been dismissed by reason of redundancy
Post-termination restrictions (restrictive covenants): Employers are obviously reluctant to pay an employee what may be a significant sum in compensation under a settlement agreement only for the employee to go off and work for a competitor. For this reason, the employer will often provide post-termination restrictions on the employee’s activities.
Waiver of claims (full and final settlement) The employee is essentially agreeing to accept the terms of the agreement in full and final settlement of any potential claims relating to the employment.
Your solicitor will always ensure that you are fully aware of any fees involved, and where possible we will work to a range of fixed fees depending on your requirements. If that is not possible, we will provide you with a very clear and transparent fee quotation that ensures you fully understand the fees you need to pay and what is included in those fees.
Get in Touch with our Employment Law Solicitors Today!
Parker Arrenberg have experienced Employment Law Lawyers who make it their priority to ensure all aspects of your case are handled seamlessly and professionally. Based in South East London, Catford and City of London, we provide a personal approach to our service and are only call or email away should you need us.
For all your legal needs, get in touch with one of our expert solicitors today. For general enquiries please call 020 8695 2330. You can also email us at email@example.com and we will get back to you.