Is your employer “paying you off”?

Your employer might give you a settlement agreement and say that you have a short timescale to sign it. A settlement agreement is a formal contract between an employer and employee. Once signed, it creates legally binding obligations on both. Usually the main obligations are that the employee agrees not to pursue claims, particularly employment-related claims, against the employer and, in return, the employer will usually make a payment to the employee.

What payments are included in a settlement agreement?

Payments depend on several factors but usually include:

  • Payment in lieu of notice (subject to tax and NI contributions)
  • Payment for holidays not taken (also subject to tax and NI contributions)
  • An ex gratia (compensation) payment, if there’s a basis for one (tax free up to a specified maximum)
  • Contribution towards the cost of your obtaining legal advice

I think I may have a legal claim against my employer and have been offered a settlement agreement, what should I do?

A settlement agreement usually requires you to waive your right to pursue any legal claims you may have against your employer, e.g. for personal injury, discrimination, or other employment related claims. If you have been subject to unlawful treatment or have had an accident at work, you should seek legal advice on the prospect of success of any claim you may have, and whether the settlement agreement amounts to too great a compromise of your rights.

What are the benefits of a settlement agreement?

As well as avoiding the delay of a formal dispute reaching a conclusion, and the risk of it being unsuccessful, not to mention the legal expense of litigation, it gives you certainty as the payments in the settlement agreement are guaranteed.

It typically includes an undertaking by the employer to provide a reference to prospective employers. Usually an employer agrees to contribute to the cost of your obtaining legal advice.

I want to sign my settlement agreement; do I need to speak to a solicitor?

Yes, to make the settlement agreement legally binding, the employee needs to be provided with advice from an independent advisor as to the terms and effects of the agreement.

It’s vital to ensure that your payments have been correctly calculated and that the terms about giving up future claims are properly and fairly worded. Your solicitor may be able to negotiate terms with your employer, to allow certain rights to be preserved, even if you sign. Also, other details in the agreement can be very important (even if your boss tells you they’re not).

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