What is a Settlement Agreement? Advice for Employees

A Settlement Agreement is a legally binding contract between you and your employer to terminate your employment on agreed terms for a clean break with no opportunity for you to take them to court or a tribunal for more money. They are used for different reasons, the most common is if you are being made redundant. An enhanced sum may be offered in exchange for the employer not undertaking a fair process.

Compensation for loss of office

The Settlement Agreement will detail the payments due to you. Up to £30,000 compensation can be paid tax free if it is genuine compensation for losing your job.

Notice payment

If you don’t work your notice you can be paid in lieu subject to tax and National Insurance deducted.

Bonus/commission

These payments should be included in the agreement. As your Solicitor we can check your contract to ensure these are paid in full.

Pension

Pension contributions should continue during your notice period unless your contract says otherwise. Your employer can agree to pay a lump sum into your pension as part of the settlement which may be paid free of tax.

Medical and life insurance

Some schemes allow you to remain in them for the period up to which your employer has paid. Other schemes require this benefit to terminate on the last day of employment.

Reference

A reference can be agreed and a clause should be included so that your employer cannot deviate from the agreed wording.

Post-termination covenants

The Settlement Agreement may reaffirm post-termination restrictive covenants in your contract but take care their scope is not increased. If there has been a serious breach of contract, we can advise whether your employer can still enforce the original restrictive covenants.

Confidentiality

The confidentiality clause should allow you to speak to specified individuals such as a spouse or immediate family about the circumstances of your departure.  It can also include clauses preventing you both from making derogatory comments about each other.

How much will it cost?

Your employer should expect to pay a contribution towards your legal fees of between £350 and £500 (plus VAT) depending on the complexity of the issues.

If you are being made redundant or wish to speak to us about your current situation or need help and advice regarding a Settlement Agreement, please contact our Employment Team as soon as possible for further advice.  York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247, email law@warekay.co.uk.