Being offered a settlement agreement by your employer can often come as a surprise. Perhaps you have been called into a meeting and told that your employer wants to discuss your future. Maybe you have received a letter marked “without prejudice” or “subject to contract”. Or perhaps you have simply been handed a document and asked to consider it.
Whatever the circumstances, receiving a settlement agreement can feel daunting – particularly when it involves the possibility of leaving your job and giving up certain legal rights.
The most important thing is not to panic or feel pressured into signing anything before you understand what is being offered and what it could mean for you.
In this article, Stan Burgess, Solicitor in Employment & Corporate Commercial at Hutchinson Thomas Solicitors, explains what you should do if your employer offers you a settlement agreement.
What is a settlement agreement?
A settlement agreement is a legally binding contract between an employer and an employee or worker.
It can be used to resolve a workplace dispute or to agree the terms on which an employment relationship will come to an end. In return for agreeing to the terms of the settlement agreement, an employee will usually agree not to pursue certain employment claims against their employer.
The agreement may include a financial payment, but it can also deal with a range of other issues, including notice pay, holiday pay, bonuses, pension arrangements, references and confidentiality.
Importantly, a settlement agreement is voluntary. You do not have to accept the first offer you receive, and you may be able to negotiate the terms.
Why has my employer offered me a settlement agreement?
There can be many reasons why an employer might propose a settlement agreement. For example, it may arise following:
- A workplace dispute
- Concerns about performance
- Disciplinary issues
- A grievance
- A proposed redundancy or restructuring
- A breakdown in the working relationship
- Concerns about a potential employment tribunal claim
In some cases, an employer may simply believe that an agreed departure is preferable to a lengthy or difficult workplace process. However, the fact that your employer has offered you a settlement agreement does not automatically mean that you must leave your job or accept the terms being proposed.
Every situation is different, and it is important to understand both the agreement itself and the circumstances that have led to it.
Do I have to accept a settlement agreement?
No. A settlement agreement is voluntary, which means that you do not have to accept it simply because your employer has made an offer.
You may decide that the proposed terms are acceptable. You may wish to negotiate changes. Or you may decide that entering into a settlement agreement is not the right option for you. Before making that decision, it is important to understand what you would be agreeing to give up.
A settlement agreement will normally identify specific legal claims that you are agreeing not to bring. Once a valid agreement has been signed, you may no longer be able to pursue those claims in an employment tribunal or court.
That is why independent legal advice is required before a settlement agreement can become legally binding.
Don’t sign before you understand the agreement
A settlement agreement can contain much more than a figure representing compensation. Before signing, you should understand exactly what the agreement says about issues such as:
- The proposed termination date
- Notice pay
- Holiday pay
- Salary, bonuses or commission
- Compensation
- Pension arrangements
- An agreed employment reference
- Confidentiality obligations
- Restrictive covenants
- The legal claims you are being asked to waive
- The tax treatment of payments.
The headline financial figure may not tell the whole story. For example, you may need to consider whether contractual payments that you would ordinarily be entitled to are being treated separately from any compensation payment.
You may also want to negotiate the wording of a reference, particularly if you are planning to seek another job.
Can I negotiate a settlement agreement?
Often, yes. A settlement agreement is not necessarily a “take it or leave it” document. Depending on the circumstances, there may be scope to negotiate the financial terms and other provisions.
Negotiations might cover:
- The amount of compensation
- Notice arrangements
- Holiday pay
- Bonuses or commission
- An employment reference
- The agreed leaving date
- Confidentiality clauses
- Restrictive covenants
- Contributions towards legal fees
Whether a particular offer is reasonable will depend on the circumstances of your employment and the potential claims or rights involved.
This is where obtaining advice from an experienced employment solicitor can be particularly valuable.
Will my employer pay for my legal advice?
Many employers will offer to contribute towards the cost of an employee obtaining independent legal advice on a settlement agreement. They are not generally required to do so, but it is common for an agreement to include a contribution towards legal fees.
It is important to check how much your employer is offering and what work that contribution is intended to cover.
How long do I have to consider a settlement agreement?
You should be given a reasonable opportunity to consider the terms of a proposed settlement agreement and obtain independent advice.
Acas (the Advisory, Conciliation and Arbitration Service) guidance recommends allowing at least 10 calendar days to consider a formal written offer, although what is reasonable can depend on the circumstances.
If you feel you are being pressured into signing quickly, it is sensible to seek legal advice as soon as possible.
Advice on settlement agreements from Hutchinson Thomas
Being offered a settlement agreement does not mean that you must make an immediate decision.
Taking the time to obtain independent legal advice can help you understand exactly what is being proposed and whether the terms properly reflect your circumstances.
If you have been offered a settlement agreement by your employer, or are considering proposing one, Stan Burgess, Solicitor in Employment & Corporate Commercial at Hutchinson Thomas Solicitors, can provide clear and practical advice on your options.
To discuss a settlement agreement, contact Stan Burgess at Stan.Burgess-Brown@hutchinsonthomas.com or call 01639 645 061.