If your employer has presented you with a settlement agreement and advised you to seek legal advice, you may be wondering whether signing it is the right step for you.
Settlement agreements are a common way for employers to bring employment disputes and potential claims to an end. Alongside a COT3, they are one of the only legally recognised ways to resolve an employment claim by agreement.
Employers often use settlement agreements during redundancies, where performance concerns may lead to a performance improvement plan, or to resolve grievances. They are also used to settle existing Employment Tribunal claims, although in those cases COT3s are often the more common option.
Benefits
There are many benefits of signing a settlement agreement.
- Protection – In most cases, a settlement agreement guarantees a financial package with the amount and payment date contractually set out.
- Compensation – up to £30,000 can usually be paid tax free (there are different tax rules for notice, holiday and other remuneration).
- Guaranteed Reference – most settlement agreements provide for an almost guaranteed employment reference with specific terms (typically job title and length of service). This can be useful if an employee has had a significant amount of sickness absence or was dismissed for poor performance or misconduct.
- Swift resolution – whilst it is often tempting to pursue matters to the Employment Tribunal, especially when someone has been very poorly treated, the reality is that the Employment Tribunal process is long winded, expensive (if legally represented) and can be very stressful. Payments under a settlement agreement are typically paid within 30 days of becoming legally binding.
- Financial certainty – It can be reassuring to know that you will receive a lump-sum compensation payment to support you in the short term while you look for new employment. You may also receive a PILON payment if you are not requested to work your notice and payment for any accrued holiday.
- Moving Forward – Employment Tribunal compensation usually reflects financial loss. As claimants must mitigate their losses, the compensation offered under a settlement agreement may be more generous than any tribunal award. A fixed termination date can also help you move on and start a new job sooner.
- Restrictive Covenants – It is often possible to renegotiate existing restrictive covenants (also known as restraint of trades) within a settlement agreement or obtain clarity on who the competitors are or which customers should not be contacted. Again, this provides clarity for the departing employees.
This is a brief outline of the benefits. An employee must receive advice before a settlement agreement can become binding. If you require advice, please use our SETTLEMENT AGREEMENT CONTACT FORM to see how we can assist you.
Please note that this provides general information only and should not be relied on as legal advice. Specific advice should always be obtained based on your individual circumstances.
