What is a Settlement Agreement?
A Settlement Agreement is a legal document entered into by an employee and employer upon the termination of employment.
The purpose of a Settlement Agreement is to offer the employee a sum of money which is usually in excess of any money they would otherwise be entitled to for the termination of their employment, be it redundancy, possible unfair dismissal, possible constructive dismissal or for any other reason. In return for which the employee contractually and voluntarily relinquishes any rights they may have to sue the employer.
The effect of this is to create a clean break for both parties and avoid potentially long and drawn out proceedings which could end up in court. If you are an employee it is important to seek independent legal advice in relation to a Settlement Agreement because it is possible that you may be entitled to more money from the employer in relation to the termination of your employment than you are being offered in the Settlement Agreement. A qualified lawyer will be able to assess this for you and advise you on any realistic prospects you might have in seeking to recover or claim those monies from your employer.
If you are an employer it is essential to ensure the employee receives independent legal advice in relation to the Settlement Agreement so that, if that employee attempts to claim in the future that they did not understand the agreement they were entering into and that despite having received a sum of money pursuant to that agreement they wished to bring some form of legal claim against you, you can refer to the independent legal advice given to the employee at the time. It is for this reason that the employer will usually agree to pay for this legal advice.Enquire today
What should you consider?
- They are a fast and efficient way to make a break from an employer and receive more compensation following a termination
- Much of the money paid via a Settlement Agreement can usually be paid tax free (up to £30,000). Usually the monies paid as contractual payments are subject to tax. It is worth discussing with an expert exactly what parts of the settlement could be tax free
- If correctly drafted, by signing a Settlement Agreement as an employee you will lose your rights to bring any employment related claims against your employers.
To speak to an employment lawyer or to receive more information about Settlement Agreements, please complete the quick contact form or call us on 0845 450 6135.