Picture the scene: you’ve had a restful, Christmas break filled with too much wine and mince pies; you come back to work raring to go with renewed motivation for the coming year. However, your first day back doesn’t consist of brainstorming ideas with colleagues over coffee, but being summoned to a room with the HR and being told that sadly, the business has been looking at ways to cut costs and you are now at risk of redundancy. Redundancy is a huge, life-changing event that can be extremely stressful and leave you feeling low and lacking in confidence.
Often, however, as an alternative, to going through the redundancy process itself, an employer can give you the opportunity to leave under a settlement agreement. This is an agreement which means bypassing the formal consultation process and leaving with a sum of money and with certain rights in return for not suing your employer at the Employment Tribunal.
What is a settlement agreement?
A settlement agreement (formerly known as a compromise agreement) is a contract entered into between an individual and their current or former employer:
- To mutually terminate the employment relationship; or
- To settle a dispute that has arisen during the course of employment and/or after the employment has ended.
Under a settlement agreement the employee signs away the rights and claims they may have against the employer (bar some exceptions), in exchange for a sum of money payable by the employer. Therefore settlement agreements are not only offered where a redundancy situation is occurring, but are also common where:
- The parties wish to end the employment relationship as an alternative to a formal disciplinary;
- The parties wish to end the employment relationship as an alternative to a formal grievance;
- The parties wish to resolve one particular issue that has arisen (such as non-payment of wages) but the relationship continues;
- The parties wish to settle an existing employment tribunal claim.
What to do if you are offered a Settlement Agreement
If you are offered a settlement agreement by your employer, you will usually be told that you must take legal advice on the terms and effect of the settlement agreement from a solicitor or relevant independent adviser. Your employer should pay for you to take independent legal advice on the settlement agreement. You should not be rushed or pressured into signing a settlement agreement until you are happy with the terms and financial package on offer. The Acas Code of Practice on Settlement Agreements recommends that parties are given a reasonable period of time to consider the proposed settlement agreement, usually 10 calendar days.
What to look out for?
Employees often forget that the settlement agreement has been prepared by the employer and/or their legal adviser, and so is most likely drafted heavily in the employer’s favour. If you are given a settlement agreement you should check that:
- There is a reciprocal confidentiality and non-disparagement clause;
- The tax position if you are receiving a payment in lieu of notice (PILON);
- A reference is included;
- The reference clause covers both written and oral requests for a reference;
- You are not being tied into new post termination restrictions.
Many people think that seeing a solicitor to sign a settlement agreement is nothing more than reading through the clauses. Employees often risk being short-changed and accepting a lower financial package than what they are entitled to, because they did not take expert advice and rushed the process due to pressure from their employer. Gelbergs’ team of employment solicitors have over 20 years’ combined experience in employment law. They have advised on all manner of workplace issues, and will always act in your best interests and strive to achieve the best outcome for your circumstances. Therefore when advising on settlement agreements, we don’t just read the small print! We will also, as standard:
- Meet with you and take the time to understand the background and your objectives;
- Intervene if your employer is exerting pressure on you, and take control of the imbalance of power;
- Consider the settlement agreement wording and advise you on any amendments that would better protect you;
- Identify and quantify your prospective claims and losses;
- Assess the financial package on offer and advise whether it is adequate compensation in the circumstances;
- Offer to improve your financial package in a strategic and cost-effective way;
- Advise you on all the options available to you.
Aida Smajlovic is an experienced Employment Solicitor based in our City office. If you have been offered a settlement agreement, or require advice or assistance with any other employment law related matter, please contact Aida on 020 7226 0570 / firstname.lastname@example.org. This blog is for information purposes only and is not a definitive statement of law. It is correct as of the publishing date, but may become out of date as the law changes. You should always seek professional legal advice about your particular circumstances.
Written by Aida Smajlovic | Employment Law Solicitor | Fri 2nd Feb 2018