How it works
A settlement agreement (previously known as a compromise agreement) is offered by an employer to an employee to bring the employment relationship to an end. It is a legally binding contract which offers the employee a payment (usually something they are not entitled to under their contract) in return for the employees’ agreement not to continue with or commence a claim at tribunal or court.
As the employee is required to give up their legal rights to continue/make a claim against their employer, the employee must obtain independent legal advice to ensure they fully understand the consequences of signing the agreement. Without independent legal advice, the agreement is not binding.
The legal fees for the employee getting advice are usually paid by the employer. This will be stated in the settlement agreement.
We will not charge you an additional fee.
If you are not happy with the settlement sum the employer is paying you and would like us to negotiate this payment on your behalf, then you will appreciate that this will require additional time to be spent by us. In these circumstances, we would discuss any additional fixed fee payable by you and agree this with you in advance.
“I have a settlement agreement from my employers.
What do I need to do?”
Give us a call and we’ll briefly discuss what you have been offered in a settlement agreement and if you’re happy with it. We shall ask you to email a copy of your settlement agreement to us or we can contact your employer on your behalf and ask them to email it to us.
We will arrange a meeting with you at a location convenient to you. We have meetings rooms in and around all of London. Alternatively, we can even advise you by telephone if necessary (provided your ID documents can be taken to a local solicitor for verification – see below).
We will need to confirm your ID which is part of our SRA regulations. So we will need to see your passport or drivers licence and a copy of a utility bill which is less than three months old. If you want us to advise you by telephone, you will need to take these documents to a solicitor local to you to send them through to us. We can recommend solicitors local to you.
We will need to see a copy of your contract of employment. If you cannot find your contract, no problem. We shall ask the employer to send us a further copy which they will have in their records. We shall do this in advance of the meeting.
We shall go through in detail listen to how and why you have come to be offered a settlement agreement. We may need to consider other documents and shall ask you to bring these with you in our initial telephone discussion or send them by email in advance.
We shall go through each of the terms in the settlement agreement and explain clearly without complicated legal jargon what they mean.
We shall discuss the settlement package being offered to you and the draft reference and whether you are happy with these. We shall discuss the tax implications of the financial package with you.
We shall communicate with the employer on your behalf if you require us to do so. There may be an additional charge for this (see frequently asked questions below). However, any minor amendments to the terms of the settlement agreement will be discussed with the employers on your behalf without additional charge.
We shall sign the legal adviser’s certificate attached to the agreement to confirm that we have advised you. You shall also sign the two copies of the settlement agreement. You then deliver both copies of the agreement to your employer. They will also sign both copies and deliver one copy to you to keep for your records. You will then receive your payments in accordance with the agreed dates in the settlement agreement.
The Employer normally offers a contribution towards your legal fees.
These are usually sufficient and there is no additional charge to you. The employer will be invoiced directly following our advice to you.
If you instruct us to negotiate the financial package being offered to you then there may be an additional fixed fee (see above).
A settlement agreement is not legally binding unless you receive independent legal advice. This is why most employers pay a contribution towards your legal fees for you to obtain the relevant legal advice.
Frequently Asked Questions
A settlement agreement is a new term for what were previously compromise agreements. This is a legally binding document between an employer and employee to settle a claim or to stop the employee from starting or continuing with legal proceedings in relation to a claim arising out of their employment or its termination. This provides reassurance to an employer that the employee will not take any or any further legal action in relation to an actual or potential dispute. In return, the employee is assured that they will be paid the settlement sum being offered.
By signing a settlement agreement you are effectively giving up any claim you may have against your employer arising out of your employment and/or its termination.
Your employer needs you to take independent advice on the terms and effect of a settlement agreement before it will be considered legally binding. It is important that you have understood the implications of signing the agreement, particularly if you have or may have a claim that is worth more than the settlement sum being offered to you. In addition, the agreement will ask you to confirm that you have not done anything that would entitle the employer not to pay you your notice pay and possibly other payments.
This is a not a straightforward question as it depends on many factors which will be discussed with you at the meeting. Generally speaking, any sums owed to you under your contract of employment, such as wages, holiday pay and bonus will be subject to tax in the normal way. Any redundancy payment, compensation for loss of employment or injury to feelings or any amount that can be treated as `damages’ may be paid tax exempt up to £30,000. We provide this advice as part of our settlement agreement service.
The employers’ contribution is usually sufficient for the time we will spend in advising you. We will invoice your employer directly for payment on conclusion of the matter.
However, if you are unhappy with the amount of the settlement sum being offered to you and you instruct us to liaise with the employer on your behalf to try to negotiate an increased level of compensation, then this may incur a small additional fixed fee. This shall be discussed and agreed with you and payable by you in advance of our undertaking the work. Where we can, we shall try and recover the additional fee from the employer in which case the sum paid by you will be reimbursed in full.
The time periods for payment are stipulated in the settlement agreement which we will advise you in the meeting. If you require earlier payment, then this is something we could discuss with the employers on your behalf.
If the settlement agreement is to terminate your employment, then it is common to agree to a reference which will be attached to the settlement agreement.