Redundancy & settlement agreements
We are seeing lots of employers making changes to their workforces. Sometimes this means asking people to leave under the terms of a settlement agreement.
Facing redundancy or other difficulties at work is hard enough at any time, but usually the employer will set a deadline by which you have to sign off the agreement or they threaten that they will withdraw the offer altogether.
Our employment solicitors can help alleviate some of that stress by providing you with clear, realistic advice on the terms of the agreement; challenging unreasonable deadlines and helping you negotiate the best severance package possible.
Many agreements have complex terms that you will need to consider as part as any agreement. For example, LTIPs, share options, bonuses, visa restrictions or restrictive covenants that you feel may hamper you in your search for new work.
Some of you may be TUPE’d over to a new employer and your agreement may be a tripartite settlement agreement between you current and new employer.
Some of you may have viable claims you could bring against your employer. Should you accept that settlement agreement and waive your right to bring claims against your employer? Or, if you reject it and you win your claims in an employment tribunal or civil court, would you end up with less money than you were offered in the first place? Whatever your individual circumstances our job is to look after you.
A settlement agreement is only legally binding if it’s also signed off by a solicitor, barrister or other relevant legal advisor and virtually all employers will make a contribution towards your legal fees.
Whatever your individual circumstances our job is to look after you. If you are being offered a settlement agreement we can help you.
There’s more information on our FAQ’s about settlements agreements and redundancies or take a listen to our podcast.
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FAQ’s – Settlement Agreements
A settlement agreement is a legally binding contract between employer and employee which usually brings the employer and employee relationship to a mutual end. A settlement agreement can also be used where the employment is ongoing, but both parties want to settle a disagreement that has risen.
No. If you do not agree to a settlement agreement, you have the right to negotiate the terms. A settlement agreement lawyer or solicitor has your best interest in mind and can help to secure the best agreements possible for you. When negotiating a settlement agreement, the things you should consider are the amount of compensation you are being offered and if the terms will affect your ability to get a new job.
Although a settlement agreement can be used as part of the redundancy process, it is not the same. A settlement agreement documents that an employee agrees to waive their rights to bring any legal action against their employer. Redundancy is different as it doesn’t waive an employee’s rights. In a redundancy situation, an employee may choose to sign a settlement agreement rather than take a redundancy package as they could get more money. However, by signing the agreement they would give up their right to make an unfair dismissal claim against their employer.
If an employee suspects that this is not a genuine redundancy, they could let the employer know that they will be claiming unfair dismissal if the settlement payment is not increased. If the redundancy is genuine, however, the employee could simply ask the employer to be more generous.
Some employees prefer to negotiate themselves, by trying to convince the employer to budge on certain aspects of the agreement, for example, increasing an ex-gratia payment.
The employee can alternatively negotiate through their solicitor, particularly where there are complex legal arguments to put forward. Obtaining independent legal advice is a requirement of a settlement agreement because the employee will be waiving their rights to bring or continue any claims against their employer. A solicitor would be advising the employee on the strengths of a potential case they may bring and explain on that basis which terms in the agreement are more easily negotiable. The solicitor would also advise on which terms are standard and may be difficult to convince the employer to change.
Each settlement agreement has slightly different clauses. A typical agreement would have:-
- A breakdown of the payments you will receive when your employment contract ends and which sums will be free of tax.
- Confidentiality clauses relating to your employment, confidential information you have been party to during your employment and also confidentiality about the terms of the Settlement Agreement.
- You will usually be required not to make negative comments about your employer and your employer may agree not to make negative comments about your employment with them.
- Restrictive Covenants – these are clauses that may stop you approaching previous clients on behalf of a new employer or stop you approaching your current employer’s staff. If you have restrictive covenants in your current employment contract, these will be repeated in the Settlement Agreement. However, new restrictive covenants may be added so you will need legal advice to ensure you are not hampered from new employment or starting up your own business, depending on your plans.
- References – you can agree what any future references will say
- The settlement agreement will contain a list of statutes under which you will agree not to bring a claim. These will include the Employment Rights Acts, Discrimination Acts, etc. An employer needs to list these.
The amount of settlement agreement compensation you receive will determine whether your settlement agreement is tax free. Typically, the first £30,000 of payments made in a settlement agreement are tax free, however, any payments made for holiday entitlement and salary will be taxable as per usual.
Settlement agreements typically contain a confidentiality clause which prevents the agreement and terms being disclosed to third parties. However, your Relevant Independent Adviser can ensure that the clause is not overly restrictive and that it is balanced in your favour to ensure you can discuss matters with relevant parties, such as prospective employers and your professional advisors.
You can only bring those claims which you have not compromised in the settlement agreement. Set out in the settlement agreement will be those claims that you are giving up bringing in connection with your employment or its termination by entering into the Settlement Agreement. Your Relevant Independent Adviser should take you through the claims you are giving up bringing as part of their advice to you. Claims not set out in the settlement agreement as compromised can still be brought and more than likely the settlement agreement will expressly state some of the claims you are not giving up. This may include personal injury claims of which you are not aware, accrued pension rights and your right to enforce the terms of the Settlement Agreement.
Acas has guidance on settlement agreements. It states that as a rule, a minimum of 10 calendar days should be allowed for an employee to consider the proposed formal written terms of a settlement agreement and to receive independent advice, unless the parties agree otherwise.
Your employer will usually pay your legal costs for a Settlement Agreement, although your employer may set a limit so we will endeavour not to charge more than your employer has agreed to pay.
We also offer a free initial consultation so it will cost you nothing to find out where you stand and how we can help you with a settlement agreement. All discussions are in confidence and we will negotiate with your employer on your behalf.
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