Settlement Agreement

A settlement agreement is an agreement between an employee and employer which settles any potential claims which the employee may have against their employer. These claims can be a combination of contractual claims and statutory claims under employment legislation.

The law demands that you cannot sign away these employment rights without the advice of an independent solicitor first. That is why the settlement agreement will contain a provision for the employer to make a contribution to the employee’s legal fees.

Many individuals who come to us don’t know what to expect. These agreements are offered to employees who are about to leave a company and they contain a package of offers. For example, they usually contain a combination of your statutory notice pay and a compensation payment as well as other potential payments such as further pension contributions and/or bonuses.

The most important thing though is that when employees sign off the agreement, they sign away their rights to bring any potential claims they have. This is why you always need to take advice from an independent solicitor.

We have heard from clients that some solicitors say they can only help if the package is already agreed, or they assume that the individual wants to sign the agreement. This is not always the case which is why we take a different approach.

We always start by looking at the background of the situation and the circumstances which have led to you being presented with a settlement agreement. This gives us a clear understanding of your particular case and ensures that we have all the facts so as to be able to advise you properly.

We then proceed with identifying any potential claims you may have against your employer if you were to not sign the agreement and the strength of these potential claims. A crucial part of this is to find out what these claims might be worth financially but also what it could potentially cost you to bring one. This gives you a yard stick against which to measure the package you’ve been offered. Similarly, when we advise employers, this gives companies a benchmark against which they can then decide what they may want to offer as an employer.

Finally, we will advise you on what we think of the offer and agree what to do next.

If you decide that you want to accept the settlement, then as well as advising on the particular terms of the document, we can negotiate any changes to the document that might need to be made, if necessary, in order to protect your position.

It the settlement agreement is being provided to you and you are an employee as well as a shareholder or director of the company, this can be a more complex situation. Such agreements are likely to include clauses dealing with the potential sale of your shareholding at the same time, any outstanding loans owed to you or to the company, as well as any ongoing responsibilities and liabilities you may have. We do however, see that most employers acknowledge circumstances where the settlement agreements are more complex and so tend to provide for a bigger contribution towards legal costs.

Settlement agreements will often contain other terms and clauses which may be just as useful to you as the financial sums on offer. These non-financial terms will form part of a Settlement Agreement and may relate to such things as confidentiality restrictions, references or the wording of an announcement to colleagues and customers. Frequently, there is a clause preventing either party from making derogatory comments about the other.

As we explain here, this heavily depends on the amount of time that we have to spend reviewing and/or negotiating the agreement. Every settlement agreement contains a legal contribution from the company and we try our best to make sure that we stay within this contribution and keep our charges to a minimum.

The amount of time we spend on the agreement will depend on whether or not the package has already been agreed and will ultimately depend on the reasonableness of the drafting of the agreement by the employer. For example, if the draft agreement contains onerous obligations on you then there will be work which needs to be done in order to negotiate the amendments and ensure you are protected.

Ultimately, by signing the agreement you want to be in a position where you can close the door on one chapter and look forward to another one. It is therefore important that you are advised correctly on the terms of the agreement you are signing and you are sure of exactly what you will be receiving and what you need to do (if anything) once signing the agreement.

The time it will take to sign off the agreement depends on the amount of work we will have to do on your behalf. If the settlement figures are already agreed, there will be little (if any) negotiating or changes required and so the agreement can be finalised and signed fairly quickly. If however, there are extensive negotiations required and a number of changes to be made to the drafting of the document then finalising the agreement can take a few weeks.