How Settlement Agreements can Provide a Fresh Start in 2017

November often marks the start of a sharp rise in demand for settlement agreements, as employers look to resolve long standing employee problems or grievances which may have stagnated during the year.

Performance and absence are the two most common issues resulting in the offer of a settlement agreement, with financial settlements typically ranging from under £2000 for low paid employees with only a short period of service, to occasionally over £500,000 for long standing senior staff in high earning positions.

Settlements agreements have become more popular in recent years - due partly to the change introduced by Section 111a of the Employment Rights Act which protects employers offering settlement agreement in cases of unfair dismissal and grants the employee a ten day period in which to consider the offer.

Formerly known as compromise agreements, settlement agreements provide certainty between employer and employee and offer a clean (and hopefully amicable) break between both parties.

Also used to resolve problems such as redundancy or a clash of personalities, a settlement agreement is a legally binding document between an employer and an employee which provides a release or waiver of claims by an employee (including a promise not pursue the case via an Employment Tribunal).

Settlement agreements also set out an employee’s terms of departure and termination payment in return for waiving claims against the employer.

If you’re offered a settlement agreement by your employer, you must obtain independent legal advice on the agreement and its effect on your statutory rights. Check that your legal advisor has insurance relating to the advice being given. He or she must also be named in the agreement. The agreement must be in writing and relate to a particular complaint or proceedings. An “adverse comment” clause may be included which prevents both parties from bad-mouthing the other to third parties (for example to other staff or potential employers).

A settlement agreement can also restrict an employee from discussing with others the reason for leaving and the terms on which they leave. However, it should allow the employee to disclose details to their family and prospective employers and can have an agreed job reference attached.

If you’re not working your full notice and being paid “in lieu”, this should be stated in your agreement as it can have taxation implications.

It’s also worth noting that the first £30,000 of any compensation payment can usually be made free of tax and NI deductions, so the settlement agreement needs to reflect this.

For information and advice, contact Jon Dyson at our Halifax office on 01422 339 600.

Find out more about Wilkinson Woodward's employment law services.