Settlement Agreements (Employment) – A Potted Guide

Your employment contract and Employer’s Handbook contain important information about your rights and how Grievances and Disciplinary matters are dealt with. This will tell you how to deal with issues such as bullying, harassment, performance and discrimination at work.

Whatever is happening with your job, it is always best to take advice and maximise your negotiating position so that you can eventually leave on the best terms.

The law permits an employer to have a “protected discussion” with you to explore ways in which you might part company. It is important that your employer makes clear to you that the discussion is a “protected” one. It is best to let your employer set out the terms of such a discussion rather than you asking if the discussion is “protected”. If a discussion is proposed without it being made clear to you that it is “protected” you may be able to argue that your employer has undermined the relationship of trust and confidence, which is part of every employment contract, and in turn that might give you grounds for resigning and claim constructive dismissal.

A “protected discussion” typically involves you being called to a meeting and an offer being made in the form of a Settlement Agreement. You will be given a short period to take legal advice and accept the offer. An employer can also offer you a Settlement Agreement after you have resigned in order to avoid the risk to the employer of you making claims.

If you are in employment and being asked to sign a Settlement Agreement, you need advice from an expert employment lawyer. We specialise in employment law and we would be happy to advise you if you are having difficulties at work or if you are being asked to accept a Settlement Agreement.

A Settlement Agreement is a very particular form of statutory contract which brings all of your potential claims against your employer to a legal end. It is also a tax document as it records how payments are to be treated for tax purposes. A Settlement Agreement is only binding if it is supported by an Adviser’s Certificate confirming you have been advised by an insured practising solicitor.

You do not need to sign a Settlement Agreement unless it is in your interests to do so. That is why the law requires you to have independent advice.

Depending on your circumstances, it may be that you should not sign any Settlement Agreement at all or that you should try to negotiate a better deal.

The core elements of a Settlement Agreement contain financial provisions. These comprise (i) payments from which income tax and NIC will be deducted, (ii) compensation or ex-gratia payments, the first £30,000 of which is paid tax free, and (iii) a contribution towards your legal costs of getting advice about the Agreement.

Some contracts permit an employer to make a payment in lieu of notice (“PILON”) which means you are paid your notice money but are released from your employment earlier than if you had worked your notice. If your contract allows for gardening leave you could be asked to not come to work during your notice period.

A word of warning about tax. Parts of compensation payments can be taxable if your employer is not paying all of your notice money, as in this example. You are entitled to 8 weeks’ notice, your weekly pay is £500. The Settlement Agreement provides for (i) a PILON of £1,000 and (ii) compensation of £5,000. The PILON and £3,000 of the compensation will be taxed. £2,000 of the compensation will be paid tax free.

It is only worth agreeing a Settlement Agreement if that will be better than what you are getting by resigning or being dismissed.

We specialise in employment problems and would be happy to advise you if you are having difficulties at work or if you are being asked to accept a Settlement Agreement. It is always best to take advice sooner rather than later in order to protect your interests.

You can also read our more comprehensive publication: “An Employee’s Guide to Negotiating a Settlement Agreement”

Contact our specialist settlement agreement lawyers today

Please contact Cormac Cawley at The Sethi Partnership Solicitors.

Cormac Cawley
T: 020 8059 4127
E: cormac.cawley@sethi.co.uk

The Sethi Partnership Solicitors I The Barn House I 38 Meadow Way I Eastcote I Ruislip I Middlesex I HA4 8TB

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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