Settlement Agreements - Commonly Asked Questions

What is a settlement agreement? 

A settlement agreement is a legally binding contract between an employer and employee which removes the employee’s rights to bring any claims in an employment tribunal or court against their employer, usually in return for compensation and other payments. These payments should cover those that may be required by law, such as notice, statutory redundancy and holiday pay, along with an additional amount of compensation. A settlement agreement could be offered to end employment, in connection with a grievance or pay dispute or to settle a claim already presented to the employment tribunal. 

Do I have to take legal advice? 

Yes. As the agreement requires the employee to waive legal rights, this is only possible if the employee receives independent legal advice on the terms of the agreement. The employee’s adviser must be either a certified Trade Union official or qualified lawyer (registered with the Law Society (Find a Solicitor - The Law Society) and also: 

1. Be independent from the Company; 
2. Be named in the agreement; 
3. Have appropriate professional indemnity insurance in place. 

How long does a Settlement Agreement take?

Once you have received your agreement and contacted us, we would make you an appointment at your convenience, either later that day or in the next couple. Usually we arrange these by telephone or video call, but we can also meet with you in person at our Newbury or Abingdon offices as you prefer. This meeting typically takes around 40 minutes to an hour and often the agreement can be concluded then. If further negotiation is required, we would discuss this with you to agree a plan and even then, we would expect to conclude within around a week or so and your employer should allow you up to 10 days to consider the offer in any event under ACAS guidelines: Settlement Agreements (under section 111A of the Employment Rights Act 1996) | Acas

How much does a Settlement Agreement cost? 

We would always expect your employer to cover the cost of you having to take advice on the terms of your settlement agreement and the amount of their contribution should be included in your agreement. Our average charge is £500 plus VAT, but the range is £350 - £5,000 plus VAT, but we would always look to work with the contribution you have been offered so we do not need to pass on costs to you. 

What claims are settled by the Settlement Agreement? 

Settlement agreements are often drafted to settle a particular dispute or issue that has arisen between the parties, such as unfair dismissal, however, they will also usually settle as many claims as possible. Usually there is a long list of these, which your lawyer would explain to you. There are a few things that cannot be settled and some things we would expect to see excluded, for example, your accrued pension rights and right to enforce the agreement (if the employer failed to pay you). 

How much compensation should I get from a Settlement Agreement? 

This is a tricky question and depends on a number of factors, such as the particular claims you are giving up (and the prospect these will be successful) and the financial position of your employer, along with your own objectives and view of the situation. This also then must be considered in the context of statutory redundancy calculations and employment tribunal averages and timescales. We would discuss this with you and use our experience to comment on your position. 

Will I have to keep it confidential? 

Yes. Almost all settlement agreements will be offered on the condition that the terms are kept confidential by both parties. 

Does my employer have to give me a reference? 

No, but where a reference is offered as part of the terms this will usually be a factual statement of your dates of employment and job title. 

Do I have to pay tax on a Settlement Agreement? 

We are unable to provide you with tax advice, but we can give you a list of local advisers. Generally, any payments you are contractually entitled to will be paid through PAYE and taxed in the usual way, any compensation may be eligible to be paid tax free under the current £30,000 threshold. 

What does it cost to have a settlement agreement drafted? 

If you are an employer reading this and would like our assistance to use a settlement agreement to agree an exit for a difficult employee, then we would be pleased to discuss your requirements with you in an initial, complementary call. We would then provide you with an estimate of costs, but typically our charges for drafting an agreement start from £795 plus VAT.