Settlement Agreement

Settlement Agreements are a way of ending problems within an employment relationship quickly and privately, which is usually to the benefit of both parties. They are sometimes offered by employers as an alternative to having to conduct formal capability, disciplinary or redundancy procedures.

In the past, Settlement Agreements could only be used to settle an existing “dispute”. A change in the law now allows employers to have “protected conversations” with employees so that they can discuss settlement on a “without prejudice” basis even before a dispute arises.

This is sometimes used when the problem is due to a personality clash rather than an actual disciplinary or capability issue.

You will often find this phrase on correspondence from your employer proposing or attaching the draft Settlement Agreement.

When negotiating the agreement it allows the parties to speak freely without the fear of anything said being used in evidence against them should negotiations break down (but see paragraph below on improper behaviour).

Under normal circumstances neither party is legally bound by anything agreed in negotiation until the final written agreement is actually signed and dated.

No. The ACAS Code of Practice on Settlement Agreements states that intimidating and aggressive negotiating is improper behaviour that will lose the parties the cloak of the without prejudice rule.

Putting undue pressure on a party by threatening to dismiss them if they don’t sign the Settlement Agreement amounts to improper behaviour, as does discrimination. It is not improper however for an employer to say that if the Settlement Agreement cannot be agreed then disciplinary or capability proceedings will go ahead.

It would be improper if the employer said at the end of those proceedings the employee would be dismissed.

It is also improper behaviour for an employee to threaten to undermine an organisation’s reputation if the organisation does not sign the agreement, unless the provisions of the Public Interest Disclosure Act 1998 apply (whistle blowing).

No. Under the ACAS Code of Practice, employers should give employees at least 10 days to consider an offer, take legal advice and sign the agreement.

Employers do not generally pluck a figure out of the air on which to base their offer of compensation. It is usually connected to a formula that applies in your circumstances.

For example, it may be based on your statutory or contractual redundancy pay plus an additional amount, say one to three months’ extra pay, as a “sweetener” to encourage you to sign the agreement.

Sometimes it will be based on the amount of time it would take your employer to conduct a capability or disciplinary procedure.

When you are considering whether to accept the sum offered or not, you will need to take into account the costs of litigating a claim, any legal fees you would need to pay that you would not be able to recover, the time and stress of bringing tribunal proceedings plus the advantages of an agreed reference.
Even if you win an Employment
Tribunal case, the tribunal cannot order the employer to give you a reference. Sometimes an agreed reference can be the most important part of your Settlement Agreement.

While a solicitor is not legally obliged to advise you on whether the compensation sum is a fair deal or not, at Cartwright King we believe that it is an important part of our service to you to help you make this assessment.

Our experienced solicitors will be able to assess how much compensation you might be awarded if your claim was to be successful, compared with what is being offered to you under the terms of the agreement.

Because you are waiving your rights to bring any further claims against your employer (but see personal injury and pensions exceptions below), and agreeing to comply with a number of other terms, Settlement Agreements can only be legally binding if you have taken independent legal advice from a solicitor (or another authorised representative).

You are free to choose your own solicitor and do not have to use the solicitor recommended to you by your employer if you don’t want to. Even if that solicitor has been recommended by your employer, they will still have a duty to be independent and act in your best interests, not in your employer’s.

Employers have no legal obligation to contribute towards your legal fees, but virtually all of them do. The amount they will pay varies depending on the type and size of employer, the nature of their business and sometimes the region they are based in.

In straightforward cases, where you are happy with the terms being offered, the employer’s contribution will usually cover all of your legal fees and there will be nothing extra to pay. Sometimes an employee may ask us to negotiate a better deal for them.

Where we believe there are grounds to increase the offer or change some of the terms of the agreement, we will quote you a fee for our time, which you are then free to accept or reject.

Often our employee clients have been happy to pay our additional charge as their compensation payment has been increased as a result of our work and more than covers the additional costs they have paid to us.

If you do instruct us, we will invoice your employer directly for their contribution so you will generally not have to pay anything up front.

The first £30,000 of any compensation payment will be paid free of tax and national insurance. This includes any amount to cover statutory redundancy pay.

If your payment is going to include pay in lieu of notice, accrued holiday and your final salary pay, this will be subject to tax and national insurance deductions.

No. This could render any agreement null and void. One of the reasons employers offer Settlement Agreements is to keep all details of any dispute and the compensation payment strictly confidential.

The only people you are allowed to tell about your Settlement Agreement are often listed within the agreement, but tend to include; members of your immediate family, your legal adviser and HMRC.

One of the key attractions for employers to offer a Settlement Agreement (besides the certainty that an employee won’t bring any claim against them) is that the matter will be kept confidential.

However, this confidentiality doesn’t apply to whistle blowing and the agreement should contain a clause stating that nothing in the agreement shall prevent the employee from making a protected disclosure (blowing the whistle) under Section 43A of the Employment Rights Act 1996.

If you don’t want to sign a Settlement Agreement, you don’t have to. You may be confident that you can overcome any difficulties posed by the disciplinary or capability procedure and you will be able to carry on working for your employer.

Or you may be confident that an Employment Tribunal claim would succeed with your eventual compensation being far in excess of what is being offered by the agreement.

In reality however, most employees who are facing disciplinary or capability proceedings are often keen to leave that employment on agreed terms and start afresh elsewhere.

Yes, this is perfectly normal. Remember not to talk about your employer on social media because even if you use privacy settings your comments can still be copied and forwarded on to others.

It depends. Your employer cannot and should not exclude a personal injury claim which has not yet arisen or which you are not yet aware of. This may sound odd, but it could happen where, for example, you have been exposed to chemicals in the workplace and your personal injury only develops several years later after the agreement is signed.

Claims for personal injury arising from harassment or unlawful discrimination can be waived under the Settlement Agreement.

If you have a current personal injury claim against your employer, you will either need to settle that as well or ensure that the agreement contains a clause that clearly states that this claim is ongoing and will not be waived.

Under Section 91 of the Pensions Act 1995, it is not possible to waive any accrued pension rights (except in very limited circumstances). Your Settlement Agreement should include a clause saying the waiver will not apply to accrued pension rights. This clause is usually found next to the clause relating to personal injury claims

Very important. It is common practice for warranties from the employer to be included in the Settlement Agreement.

It is important to pay particular attention to these warranties because if you breach them, the employer could either withhold your payment or commence Court proceedings against you for their losses caused by your breach.

This will typically include the compensation sum (if that has already been paid to you) and their legal costs of initiating and conducting legal proceedings.

Typical warranties include:-

That you won’t breach the confidentiality agreements
That you have not committed a repudiatory breach that would entitle your employer to dismiss you without notice for Gross Misconduct
That you have not already received an offer of employment

If you have already received an offer of new employment, it’s possible to negotiate this warranty out, particularly if the Settlement Agreement is not the result of a hotly disputed or controversial issue.

Restrictive covenants are usually reserved for more senior executives who are in possession of valuable and confidential information, trade secrets or have strong links with the employer’s clients and customers.

Sometimes a Settlement Agreement will ask an employee to reaffirm that they will abide by the restrictive covenants in their original contract of employment. Employers will often make a payment of an additional sum, usually between £10 and £100, in exchange for the employee’s reaffirmation.

If you are a senior executive with restrictive covenants, this clause can sometimes be more important than negotiating the compensation payment itself.

Perhaps your employer has offered you a standard reference simply confirming the dates of your employment and your job title. You should probably not worry about this too much as nowadays the vast majority of employers give a standard reference along these lines.

Because this sort of reference is so common, prospective employers are not usually troubled by it, nor assume that you have anything to hide. If you would like an enhanced reference you can ask your employer and they may agree.

Employers are not under any legal obligation to give a reference, only to give a reference that is fair, accurate and not misleading. Therefore, if you are facing dismissal for misconduct, your employer may be reluctant to give any reference at all. However, Cartwright King may be able to help you negotiate a standard reference.

When all of the parties have legally signed and dated the agreement. That means you, the employer and your Cartwright King solicitor. Until it is signed by all parties it is without prejudice and subject to contract.

Your first point of call should be to inform your Cartwright King solicitor, who will look to contact on your behalf to ensure this is paid.

If this is not effective, you can bring a breach of contract claim in the civil courts or, if you are still employed and the compensation is under £25,000, a claim in an Employment Tribunal.

In reality, few employers will refuse to pay the compensation payment as it is not in their interests to do so.

That is not necessary. As long as you or your employer can email a copy of the agreement to us we can assist you by telephone. You should have the agreement in front of you during the call and allow between 30 to 60 minutes for us to discuss the agreement with you, advise you of its terms and take your instructions if you have any.

It depends on what is making you unhappy. If it is bullying, harassment, discrimination or some other sort of unlawful treatment, we can approach your employer on your behalf pointing out their breaches of employment law and suggesting a negotiated settlement.

You may also be pleasantly surprised that our approach results in an improvement in your situation, which allows you to continue at work, but on a much happier footing.

If you are unhappy because you are simply fed up at work and your employer has not done anything wrong or unlawful, they will be much less inclined to offer a Settlement Agreement.