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Frequently asked questions about Settlement Agreements

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Every year we advise hundreds of employees on the contents of their Settlement Agreements.  If you’ve been given a Settlement Agreement by your employer or you think one might be coming your way, here are the answers to the 10 questions employees most commonly ask:

  1. What is a SA for? It’s a legally binding contract between an employer and an employee which is usually used to end the employment relationship on agreed terms.   It covers any payments made, and an agreement that you won’t sue your company for anything.  It may also include some other obligations on the parties.
  2. What should my employer be paying towards my legal fees?  The usual and fair amount for an employer to contribute to legal costs is at least £500 + VAT.  This was confirmed in a recent Employment Appeal Tribunal  case, yet some employers still offer only £350 + VAT or less – woefully out of date! Depending on your circumstances and the advice required, it is possible that your employer’s contribution towards your legal fees will not cover the entire amount you owe.  If so, you need to be prepared to pay the balance yourself – or negotiate a higher contribution from your employer.
  3. Do I have to take legal advice? Yes, otherwise the agreement won’t be valid. Therefore, you must receive advice from an independent legal adviser, that is a solicitor or barrister (and occasionally a Trade union advice representative).  The adviser has to explain the terms and effect of the Agreement.  A Settlement Agreement is a legal document, clauses need explaining as do the rights you may be waiving.  Financially, you also need to understand your position. Unfortunately, employees don’t always get what they want or deserve financially.
  4. Do I have to sign? No.  A Settlement Agreement is voluntary. You don’t have to sign anything. You should get legal advice before you should sign. Once you sign (and your employer signs), it is a legally binding agreement.   Be aware however, if you don’t sign the Agreement, you will still have to pay the lawyer’s fees for advising you.
  5. Are my payments tax-free? Certain payments under a SA may be tax-free.  Up to £30,000 of compensation for a termination can be paid tax-free.  However, this must be actual ‘compensation’ for the loss of your employment rather than notice pay or other contractual benefits.
  6. Can I negotiate on the Agreement, or do I have to accept its terms? Often Settlement Agreements follow a similar format and whilst lots of employers will say ‘those are our terms – take them or leave then’, there is often room to negotiate.  We can advise you and, if necessary, negotiate directly with your employer.
  7. I have been sent home with a Settlement Agreement – have I been dismissed?  No – your employment will only come to an end if, as and when you and your employer agree terms.  In the meantime, neither you or your employer should make any leaving announcement or arrangements.
  8. I have been told I have to sign by a certain deadline – do I have to?  The ACAS Code of Practice says parties should be given a “reasonable period of time” to consider the proposed agreement and suggests a minimum period of 10 calendar days to consider any proposed formal written terms of a settlement agreement and to receive independent advice.
  9. Can I still make a Tribunal claim if I sign a SA? In a SA you waive all and any claims against your employer.  Once you sign it you can‘t sue for a claim past or future, unless you’re enforcing a SA, you’re making a future Personal Injury claim (unknown at the time of signing) or you’re claiming for accrued pension rights.
  10. Is a Settlement Agreement a gagging order? Not exactly.  There may be some confidentiality clauses that may prevent you talking about the terms and, sometimes, the circumstances of the agreement as well as disclosing confidential company information.  You cannot be prevented from ‘whistleblowing’ or making a protected disclosure.   Your lawyer will be able to advise you on what you can and cannot say and do, and suggest amendments if necessary.

If you’re looking for advice on your Settlement Agreement, our employment law experts would be happy to help, just get in touch!

Contact Menzies Law

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