Negotiating fair settlement agreements

Settlement agreements in Sussex

In the event of a dispute between yourself and your employer, a solution that could benefit everyone can come in the form of a settlement agreement. These agreements, underpinned by the law, allow the two parties to part in a way that protects the reputation and the budget of the employer, and ensures the employee is not left out of pocket by leaving their employment.

At 365 Employment Law, we handle settlement agreements in Sussex with and on behalf of employees and employers, ensuring that a mutually beneficial conclusion can be reached. We work with clients across Worthing, Brighton and Hove, Littlehampton, Chichester and Bognor Regis, making us your go-to for settlement agreement solicitors in the West Sussex and East Sussex areas.

What is a settlement agreement?

Settlement agreements are legally binding resolutions to employment disputes, whereby, usually, the employer agrees to pay the employee a severance amount or cease the disputed behaviour (or both), while the employee agrees not to pursue the matter further at an employment tribunal.

Settlement agreements are usually proposed by the employer, but the employee and their legal representation are often able to negotiate the terms. Throughout the process, employers must follow the ACAS Code of Practice – failure to do so may result in grounds for an unfair dismissal claim.

What is the difference between a settlement agreement and a compromise agreement?

‘Settlement agreement’ is simply the new term for ‘compromise agreement’. They are, in essence, the same thing.

Is a settlement agreement the same as redundancy?

Whilst a settlement agreement usually involves receiving a lump sum from your employer (which is, often, higher than you would receive in statutory redundancy), and the company ceases to employ you, a settle agreement is not classed as a redundancy. This is because your role still exists and has therefore not been made redundant. Settlement agreements can, however, be used to make voluntary redundancy more appealing, but they are still not the same thing.

Why do you need a settlement agreement solicitor?

As settlement agreements are usually proposed by an employer, it’s essential that you, as an employee, get independent legal advice when negotiating. Settlement agreement solicitors will be able to guide you through the terms set out in an agreement drafted by your employer, so you can fully understand their implications. They can also negotiate on your behalf, ensuring you get the best and fairest deal.

What are the usual settlement agreement payments?

The settlement amount can usually be broken down into the following areas:

Compensation for loss of employment

Also known as compensation for loss of office, this payment compensates you for the fact that you’re losing permanent employment at your current company. This compensation can be made income tax and national insurance free up to a threshold of £30,000

Notice payment

This includes the appropriate amount due to you up until your termination date, as you would get if you gave notice of termination in the normal way.

Bonus and commission

This is the payment of any bonus that you’re contractually entitled to, and any commission that you may have already earned. Settlement agreement payments in place of notice (PILONs) are subject to full income tax and national insurance contributions.

Pension and settlement agreements

In many cases, you may be able to pay part or all of your tax-free settlement agreement lump sum (up to £30,000) into your pension, allowing you to draw down more when the time comes.

Medical and life insurance

You may find that entitlement to some employment benefits, such as medical and life insurance, lasts beyond your termination date, which adds value to the settlement agreement.

Can my employer dismiss me if I don’t accept my settlement agreement?

The important thing to note is that settlement agreements are voluntary – you are not obliged to accept. If you decide against signing a settlement agreement, your employer may begin a disciplinary procedure if the dispute is about the quality of your work, or absences that have been deemed unacceptable. The disciplinary procedure should be the one outlined in your contract, and/or employee handbook, and could lead to dismissal.

If you’re considering refusing a settlement agreement, it’s vital to seek the advice of an employment law solicitor, who can check that you’re in possession of all the facts first, talk through your reservations about the agreement, and negotiate with your employer if necessary.

How do I know if a settlement offer is fair?

The fairness of the employment settlement agreement that you’ve been offered will depend on your individual circumstances, which it’s why you will need to seek settlement agreement advice from an employment solicitor. They will assess the nature of the dispute, the terms within the settlement agreement, the terms within your contract, and the payments you would be receiving if you signed the agreement. They’re best placed to advise on whether the settlement is proportional.

In many cases, an employer will make contributions towards the employees independent legal advice, to ensure things are kept fair.

Obtaining a workplace reference

You may be wondering how a workplace reference works when you leave a job having signed a settlement agreement, but it can be agreed prior to termination. In fact, a reference can be written as part of the settlement agreement, ready to be sent out to prospective employers when the time comes.

A settlement agreement solicitor such as 365 Employment Law can assist in your settlement agreement negotiations, which can include a suitable workplace reference.

When will you receive your settlement agreement money?

Once a settlement agreement has been signed, you can usually expect any lump sums to reach you within the 7-28 days. Sums including salary, bonuses, commission and accrued holiday may be paid separately as part of payroll.

Post termination restrictions

You may find that the terms of your settlement agreement set out some restrictions. This could include:

Garden leave

Garden leave means that although you may be paid notice, you’re restricted from doing any work for the company or attending the office. In short, you must stay away from the business during your notice. Garden leave also limits your ability to move employment to a similar job. Your employer can use this to keep you out of the competitive market for a specified period of time; this is very prominent in competitive industries such as finance and motorsport.

Working for a competitor

This restricts you from going on to work at a company that does the same kind or work and competes for the same clients and customers as the company that you’re leaving.

Working for a client

This restricts you from approaching, or accepting an offer from, a current client of the company that you’re leaving.

Disclosing confidential information

Similarly to a non-disclosure agreement, a settlement agreement may stipulate that you are not to share confidential information, such as the company’s financial details.

Why choose 365 Employment Law?

Our experience of advising both employees and employers on the subject of settlement agreements has given us the insight and expertise required to reach favourable and fair outcomes for both parties.

If you’re an employee seeking a legal pair of eyes on the settlement agreement that’s been proposed to you, or if you’re an employee looking to put together a fair settlement agreement, we’re the team to call. We can help with settlement agreements in Sussex, in areas such as Worthing, Brighton, Hove, Littlehampton, Chichester and Bognor Regis. We’re knowledgeable, approachable, and professional – give us a call today.

Frequently Asked Questions

What is a settlement agreement?

A settlement agreement is a legally binding document used in UK employment law to formally resolve disputes between employers and employees. It usually outlines the terms and conditions under which an employee agrees to leave their job, often in exchange for compensation.

Is a settlement agreement the same as an NDA (Non-Disclosure Agreement)?

No, a settlement agreement and an NDA are not the same, although they can be included within the same document. A settlement agreement addresses various aspects of employment termination, such as financial compensation and post-employment obligations, whereas an NDA primarily focuses on confidentiality and non-disparagement clauses.

What is an ex-gratia payment in a settlement agreement?

An ex-gratia payment is a discretionary, one-time payment made by an employer as part of a settlement agreement. The payment is not a legal requirement but is offered as a goodwill gesture from an employer to an employee for their agreement to certain terms.

Are there minimum payouts in settlement agreements?

There are no fixed minimum payouts in settlement agreements as they are negotiated between the employer and the employee.

Do I pay tax on any compensation or awards received in a settlement agreement?

The tax treatment of compensation received in a settlement agreement can vary. In many cases, compensation payments of up to £30,000 are tax-free in the UK. However, any additional payments, such as salary, accrued holiday pay, or bonuses, may be subject to income tax and National Insurance contributions. It’s essential to seek professional advice to understand the tax implications of your specific settlement.

Can I negotiate the terms of a settlement agreement?

Yes, settlement agreements are typically open to negotiation. Both parties can discuss and agree on the terms, including the compensation amount, reference letter, and other clauses. It’s advised that you consult with an employment solicitor to ensure your interests are protected during negotiations.

What happens if I refuse to sign a settlement agreement?

If you refuse to sign a settlement agreement, it could mean that the dispute or issue may not be resolved, and the employment relationship could continue to deteriorate. It’s important to carefully consider the consequences and consult with a legal professional to make an informed decision.