Ben Doherty Partner, and Head of Employment at Lindsays answers the most asked questions on settlement agreements.

Settlement agreements tend to come up when an employer wants to discuss with an employee about them leaving on mutually agreeable terms. It avoids the business being required to go through the process of performance management and disciplinary procedures.

The process involves a protected conversation between the two parties where the settlement agreement is offered to the employee.

Here’s Lindsays essential guide on this topic.

What is a reasonable settlement agreement?

It will depend on the individual circumstances of your case.  If you have been with your current employer for a long time, you are likely to receive a lot more than somebody with short service.

Generally, if all the employer is offering is your contractual right to notice and holidays plus a sum equivalent to a statutory redundancy payment, that agreement is unlikely to be reasonable and you could ask for a larger payment.

How much should I accept in a settlement agreement?

Again, this will depend on your individual circumstances.  If your employer believes that you have committed an act of gross misconduct you are likely to be offered less than somebody who has long service and is being made redundant. Whether you accept that offer will depend on what evidence the employer has of your alleged misconduct.

What are settlement agreement requirements?

Settlement agreements are used to remove your ability to go to the employment tribunal to enforce your statutory rights, for example your right not to be unfairly dismissed or your right not to be discriminated at work because of your sex.

Those rights are created by legislation passed by parliament and it also says that you can’t contract out of the right created by the legislation unless certain conditions are met. Those conditions include that you take independent legal advice, that the agreement be in writing and that it be in respect of specific claims.  There is also a requirement that the agreement notes that it has complied with the legislation governing such agreements.

Who can I tell about my settlement agreement?

Normally there is an expectation that you won’t tell anybody about the agreement until it has been signed and usually contain wording stating that you will keep “the terms and existence” of the agreement confidential but that you can tell your immediate family, professional advisers or has may be required by law.

There is often wording included that you can tell a potential new employer or a recruitment agent that you were made redundant.

Can a settlement agreement be overturned?

Rarely. However, the agreement usually contains promises that you give to your employer and if these are found later to be lies they may try to avoid paying or to recover it if already paid

Can a settlement agreement be tax free?

An employee is entitled to receive up to £30,000 tax free provided it is paid in consideration of loss of office.

Can a settlement agreement be voided?

It is very unusual to see either party try to void a settlement agreement but like any other contract it technically could happen. If either party breaches the terms of the agreement, the party not in breach is able to sue for breach of contract.

Can a settlement agreement be withdrawn?

No, once signed the agreement cannot be withdrawn. However, if the agreement has not been signed, the employer can withdraw their offer at any time.

Should you accept a settlement agreement?

This will depend on the value of the offer and your individual circumstances.  On occasion your options may be such that refusing the first offer is in your best interest as the value of the offer is much less than it should be.

If you cannot reach an agreement, it is likely that your employment will terminate in any event without the benefit of the enhanced payment due under the agreement and you can then proceed to bring a tribunal claim.

However, the offer is usually sufficiently high that your best interests are served by accepting it and moving on to find a new job.

Contact us now

Our experienced Employment team are happy to discuss more in detail with you about Settlement Agreements, please feel free to contact us by clicking here.