Employment Law: Top Tips for Employees Considering a Settlement Agreement with their Employer

By Steven Stewart, Dispute Resolution Solicitor

steven.stewart@elselaw.co.uk, 01283 526218

Settlement Agreements are frequently used to resolve disputes between an employee and an employer in relation to termination of employment. In the past they were called Compromise Agreements, but this changed to Settlement Agreements in 2013. However they can also be used to resolve ongoing workplace disputes that do not involve termination, such as bonuses, holiday pay or sick pay.

Typical examples of disputes that can be resolved by a Settlement Agreement include unfair dismissal, breach of contract (wrongful dismissal), redundancy, discrimination, and claims for outstanding salary, expenses, bonuses etc.

For many employees the prospect of engaging with a lawyer in relation to an employment dispute is fairly daunting, but it is important to remember that a Settlement Agreement is designed to resolve disputes and therefore help the Employee. Else Solicitors have a dedicated team with a wealth of experience helping employees resolve employment disputes. Below are some tips and advice in relation to Settlement Disputes. For more information and an initial discussion please contact Steven Stewart at Else Solicitors via email or phone: steven.stewart@elselaw.co.uk / 01283 526218.

  1. What exactly is a Settlement Agreement? It is a legally binding agreement on a full and final settlement basis between an Employer and Employee in relation to a dispute arising from the termination of employment (although it can also be used to resolve ongoing workplace disputes).
  2. What do I get out of a Settlement Agreement? In return for a payment of compensation (commonly referred to as a termination/compensation/severance payment) the Employee agrees to waive/forego any claim of an employment related nature relating to the termination of the employment, e.g. unfair dismissal, breach of contract, wrongful dismissal, redundancy, discrimination etc. Claims for personal injuries including mental health injuries are usually included in a Settlement Agreement (except Latent Injuries, see below).
  3. Do I need a Solicitor? Settlement Agreements are normally instigated by an employer as a way to resolve a dispute. They will do this through their own legal team or an external lawyer. In order for a Settlement Agreement to be valid the Employee must receive independent advice from a qualified solicitor whose firm has indemnity insurance cover. The reason for this is to protect the Employee and ensure they know what is in this legally binding document. All employees that want to resolve a dispute via a Settlement Agreement will therefore need to engage and instruct a qualified solicitor.
  4. What does it cost for a Settlement Agreement? The Employer will pay for their legal fees, but there are also the employee’s legal fees to bear in mind too. The minimum costs of dealing with a straightforward and uncomplicated Settlement Agreement, i.e. one that does not require anything other than minor amendments is around £650 plus vat. If there are lengthy discussions, extensive changes, or ongoing disputes then costs can rise significantly above this.
  5. Who pays my Legal Fees? As Settlement Agreements are primarily instigated by the Employer, it is almost invariably the case that the Employer agrees to make a contribution towards the employee’s legal fees. Some key facts that you need to be aware of in relation to this include:
  • It is important to understand that this is a contribution only and not a complete indemnity for the costs that will be incurred in your receiving independent legal advice. The contribution in other words is unlikely to cover your full legal costs, however this may be part of your negotiating strategy before accepting a Settlement Agreement or it may be something that your solicitor can try to get included in the final agreement.
  • You will only receive the contribution provided you actually sign the Settlement Agreement.
  • It is you and not your employer that has the relationship with your solicitor, and hence you are ultimately responsible for paying all your legal fees. The employers agreed contribution (as discussed above) is between you and the employer, and therefore often gets paid along with the financial settlement. If your employer fails to pay the agreed contribution towards your legal fees then this will amount to a breach of contract and you are able to pursue your employer for a claim to enforce the terms of the Agreement.  However this is extremely unlikely to occur.
  1. What is included in a Settlement Agreement? Any matter that has been agreed between you and your employer should be included in the Agreement. You should not rely upon separate oral or written promises to seek to argue there has been an agreement by your employer to do certain things.  If there are any such matters they should be included in the Agreement as all previous agreements/negotiations are deemed to be superseded by the Agreement.  In other words if it is not in the Agreement you will not get it.
  2. What is excluded from a Settlement Agreement? While claims for personal injuries including mental health injuries are usually included in a Settlement Agreement, latent injuries i.e. those that are not known at the time of the agreement are excluded and can therefore be claimed subsequently. Pensions Rights are also be excluded from Settlement Agreements, and an experienced solicitor should spot if these are included by an employer and get them removed.
  3. What happens after the Agreement is signed? Unless expressly dealt with in the Agreement any clauses in the contract of employment that deal with the post termination position between the parties is not affected by the Agreement. These would commonly include clauses that purport to restrict an employee’s activities post termination (i.e. restrictive covenants) which may or may not be enforceable, and issues relating to disclosure of confidential information etc.  It is important when seeking advice in relation to Settlement Agreements to provide your contract of employment. This may enable negotiation to take place to waive or modify any restrictions that are in your contract of employment which may affect your ability to work for another employer post termination.
  4. Should I enter into a Settlement Agreement? There are a number of factors which you should take into account before deciding whether to enter into a settlement agreement. These include:
  • Whether the amount offered as compensation is reasonable. This will involve the consideration of what the employer would have to pay to you to terminate your contract of employment lawfully i.e. pay you what you are owed under a notice and any accrued salary/holiday entitlement etc.
  • The merits of any employment related claim that you may have against an employer in relation to the termination of your employment.
  • The likelihood of your obtaining suitable alternative employment within the foreseeable future. You have an obligation to mitigate your loss by seeking re-employment.
  • Whether you simply wish to end the relationship and receive a payment of something which is more or less guaranteed (unless your employer becomes insolvent when there is a substantial risk that you will not receive the full amount offered/agreed or only receive a lesser and/or limited sum and the risks of insolvency can never be ruled out though it may be theoretical).
  • The costs and uncertainty of being involved in lengthy and costly litigation, which potentially would involve you pursuing a claim through a tribunal and court.
  • It is important to understand that any offer made by an employer until the agreement is executed by both parties is without prejudice i.e. off the record. It can therefore be withdrawn at any time before the offer is accepted. Accordingly if you try to negotiate an improved offer your employer may decide to withdraw the offer altogether and make no further offer. This though is unlikely because in an employment situation the Employer rarely insists upon strict contractual law rights because in reality they want to achieve an amicable resolution to the dispute by way of a settlement agreement.

Else Solicitors have a dedicated team with a wealth of experience helping employees resolve employment disputes. For more information and an initial discussion please contact Steven Stewart at Else Solicitors via email or phone: steven.stewart@elselaw.co.uk / 01283 526218.

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