Settlement Agreements – formally known as Compromise Agreements – are often offered in redundancy situations. You can negotiate the terms of the agreement, or even refuse it altogether, if it’s in your best interests.
What is a Settlement Agreement?
A Settlement Agreement is a contract between an employer and an employee, in which the employee waives their right to bring legal action. In return, the employer offers some kind of incentive, such as a severance package and/or a reference.
Why am I being offered a Settlement Agreement during redundancy?
Settlement Agreements can be used in lots of different situations. One of the most common is when your employment is being terminated because of a redundancy.
Employers must follow strict protocols during the redundancy process. Amongst other things, your employer must consult you on their decision to make you redundant, try to find another position for you in the same company, and give you the chance to appeal.
If your employer fails to meet the requirements, your redundancy could be considered unfair. This would give you the option of pursuing an unfair dismissal claim at an Employment Tribunal.
Therefore, you are being offered a Settlement Agreement firstly because it avoids the need for the redundancy process – which can be long-winded and difficult for your employer. Secondly, it protects your employer from the threat of legal action.
Should I sign it?
However, a Settlement Agreement may also be beneficial for you. The terms of a Settlement Agreement will vary from case to case. But usually, you will be given a sum of money (known as severance) and a reference.
The compensation on offer may be greater than your statutory redundancy pay. On the other hand, your employer may be suggesting a poor deal. If you waive your right to bring legal action, this could put you in a difficult position.
Thankfully, you must seek legal advice before signing a Settlement Agreement. Otherwise, it isn’t valid. This ensures you will not sign anything that goes against your best interests. Typically, your employer will cover your legal fees, so you do not have to worry about the cost.
Expert legal advice
At Garner & Hancock Solicitors, we can review the terms of the proposed Settlement Agreement and advise you on the implications. We may raise concerns regarding things such as:
- The amount of severance being offered
- The wording of your reference
- The tax implications (you have to pay tax on payment in lieu of notice, holiday pay, bonuses and your severance package if it is more than £30,000
- The reasons for your redundancy – it may be that you have grounds for an unfair dismissal claim
If necessary, we can help you negotiate the terms of your Settlement Agreement. We can also explain any unforeseen consequences of signing the contract, such as tax liabilities or ‘non-compete’ clauses, which prevent you from working for your employer’s competitors.
We have your best interests at heart and can ensure that you are getting the most out of your redundancy. We know this is a stressful time, but we are here to offer expert legal advice.
Contact us now
Have you been offered a Settlement Agreement? Let our solicitors review it first.