If you are offered a settlement agreement you will need independent legal advice. We are specialist employment solicitors in Cambridge. Call Cambridge Legal on 01223 776200 or email enquiries@cambridgelegal.co.uk
What is a settlement agreement?
A settlement agreement (known until July 2013 as a compromise agreement) is used to end the legal relationship between employer and employee on contractually binding terms.
Typically, under a settlement agreement your employer offers financial compensation (and possibly other benefits). In exchange you must agree to leave and not to bring or continue Employment Tribunal proceedings against your employer. Employers offer settlement agreements in a range of situations involving the termination of the employment relationship. Your employer will want to avoid the cost and inconvenience of litigation and adverse publicity that might otherwise result. Consequently, you may be in a position to negotiate good compensation for giving up valuable employment rights. An effective settlement agreement will prevent Employment Tribunals from hearing your complaints (what your employer wants), for compensation (which is important to you).
There is an ACAS Code of Practice on Settlement Agreements: https://www.acas.org.uk/code-of-practice-settlement-agreements/html
What are the legal requirements?
Settlement agreements are not legally enforceable unless they:
- are in writing
- relate to a particular complaint or proceedings
- are signed by you after you have received independent legal advice on the terms and effect of the settlement agreement and, in particular, its effect on your ability to pursue your rights before an Employment Tribunal
- identify the adviser
- state that the conditions governing settlement agreements under the Employment Rights Act 1996 are satisfied.
Additionally, the independent legal advice, which we can provide, must be from an identified legal adviser who is insured. Cambridge Legal Practice has an appropriate insurance policy.
Independent legal advice ensures that you understand the terms of the settlement agreement and its effect on your ability to present a complaint to an Employment Tribunal. Good independent legal advice will be based on your best interests and ensure that you are adequately compensated for “compromising” your employment rights.
What about your pension rights and non-employment rights?
It is important that you do not sign away your other legal rights.
We can discuss the specific circumstances of your case with you and advise about the rights that your employer proposes to remove under the settlement agreement. Unless there are very special circumstances you should not sign anything that adversely affects your existing pension rights or rights to claim for personal injury. If anything goes wrong in the future with your work based pension you should retain the right to sue. If you have been physically injured or exposed to something at work that may have medical consequences it is important to ensure that you do not lose the right to future compensation.
What about references?
It is probably important for you to ensure that your current employer will provide a reference to your future employer(s). Under English law you have no entitlement to a reference. It follows that if references are not dealt with in the settlement agreement you may have future difficulties. The best solution is to make the provision of a reference a binding term of the settlement agreement and to include agreed wording of a reference in a schedule to the agreement.
We can advise on this and, to protect your future career, can negotiate suitable provisions with your employer.
What else is potentially damaging to your future?
As settlement agreements are usually carefully drafted there are many possible provisions that contain hazards.
One danger to be aware of is the inclusion of restrictive covenants. These may restrict you in your choice of future employer. For example, you may find that you are forbidden (on pain of having to repay the compensation) from working for a competitor or for a similar business in the same geographic area for months or years. Perhaps there are already restrictive covenants in your employment contract that will continue to bind you. Employers sometimes attempt to extend the existing restrictive covenants by including additional provisions of wider scope in the settlement agreement. We can advise you on restrictive covenants.
Is the settlement agreement a ‘good deal’ for you?
Independent legal advice for the purposes of settlement agreements does not require the solicitor to advise you about the merits of any potential legal claims against your employer or whether the agreement represents a good or a bad deal. However, we can provide that advice or negotiate the agreement if you wish. It may be that we can improve your employer’s settlement offer.
Advice or negotiation may fall outside the scope of the advice for which your employer is prepared to pay. We give you as much information as possible so that you can decide whether or not to sign the settlement agreement. We will also advise what amendments, if any, are needed before you sign.
What if you do not sign?
If you decide not to sign the settlement agreement, we will advise you of the consequences, which may include the termination of your employment. Your employer will probably not contribute to your legal fees if you do not sign. If so, you will be responsible for our fees.
If you decide not to sign the settlement agreement, you should act quickly if you want your Employment Tribunal claim to be in time. Strict time limits or “limitation periods” apply. We can advise you about these.
Costs
It is usual for the employer to offer to pay the legal cost of independent legal advice to make a settlement agreement binding. That is appropriate given that purpose of a settlement agreement is primarily to protect the employer from being sued by the employee.
The contribution normally ranges from £500 to £1,500 plus VAT. The average varies across the country and for different occupations, and may depend upon the amount of compensation being paid. Typically, more is paid for senior employees. We may be able to negotiate better contributions, particularly for senior employees or where the legal dispute or the negotiations are complex.
Tax
Payments for work done or payments made because of a clause in the contract of employment are normally subject to deductions for income tax and national insurance contributions (NICs).
Generally you can receive up to £30,000 without deduction for tax, if it is paid as compensation for losing your employment. We can advise you if this might be applicable in your case. Where more detailed advice on personal taxation issues is required we may suggest that you contact an accountant.
It’s your decision
We will not tell you whether or not to sign a settlement agreement. Our role is to advise you about its terms and effect and, where you instruct us to do so, to advise you on whether or not the termination payment represents a good offer.
We are Cambridge employment solicitors providing independent legal advice on settlement agreements. Call Cambridge Legal on 01223 776200 or email enquiries@cambridgelegal.co.uk
“I like work: it fascinates me. I can sit and look at it for hours.. I love to keep it by me: the idea of getting rid of it nearly breaks my heart.” Jerome K Jerome