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Legal advice on settlement agreements for employees

Has your employment contract been terminated? We know how tough it can be. But there are things that can make the situation a little easier to handle.

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Settlement agreements between you and an employer can provide you with a monetary settlement and a reference to use when seeking new employment. If you have been let go, it may be in your interest to seek a settlement agreement, or to accept one if it has been offered.

But before entering into what was previously known as a compromise agreement, it is vital you fully understand where you stand in legal terms. In fact, it might be required that you take independent legal advice from a qualified person before signing any such agreement.

What is a settlement agreement?

A settlement agreement is a contract between you and a current or former employer that brings your employment to an end. It is binding in UK law and is the only way to waive the rights within your employment contract.

A settlement agreement will normally provide a one-off payment. In return, the agreement will state that you cannot pursue any grievance or claim against the company at an employment tribunal.

That law requires that you seek independent legal advice from an employment law solicitor for any agreement to be valid. Your employer will normally pay any legal costs that you incur.

The terms of your agreement are likely to stipulate that you keep the terms of your agreement private. They are also likely to prevent you from making derogatory comments about your former employers and vice versa.

What are the circumstances under which I can seek a settlement agreement?

When your employment comes to an end, you may have a number of potential claims against the employer. Your grievances against your employer may include the following:

  • Your wages or salary have not been paid in full (includes bonuses).
  • Your employer has not paid due respect to your statutory rights under the Employment Rights Act 1996 or other employment laws.
  • Your employer has breached the terms of your contract – e.g. they have given you less notice than your contract requires.
  • Your dismissal involves unlawful discrimination on grounds of sex, religion, race, sexual orientation or disability.

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Why would I choose to sign a settlement agreement?

The process of seeking a settlement agreement rather than making a formal complaint against your employer has many benefits. Indeed, it could be quicker and less expensive than going to an employment tribunal.

You should also bear in mind that if a dispute wasn’t already open (potentially meaning you were unaware of any issue) then the opening discussions about the settlement can’t be used as evidence as part of a later unfair dismissal claim at an employment tribunal.

If negotiated properly, a settlement agreement is an effective way of ensuring that you receive adequate compensation without the need to bring a formal claim against your employer.
It means you can be certain you will receive payment within an agreed timescale – and if it’s under £30,000, you will receive the sum untaxed.

You will also get the chance to receive a job reference with the agreement. This is very useful if you left the company on bad terms and you need a reference to apply for jobs in the future.

How much money will I receive as part of my settlement agreement?

The sum you will receive as part of your agreement will depend on your situation. Good employment lawyers may be able to challenge the amount you are offered under the agreement so that you receive more money. They may also be able to convince your employer to give you a settlement agreement if they are otherwise refusing to do so.

I've been offered a settlement agreement – what should I do?

If you are offered a settlement agreement, you should seek expert legal advice as soon as possible.

At First4Lawyers, we can advise you on any claims you may have and negotiate the best compensation package for you. At every stage, we aim to give you the legal and financial protection you need.

Our specialist employment lawyers are here to help get the right settlement for you. For more information, contact us. If you prefer, you can use our enquiry form, or use the Request a Callback feature at the top of the page.

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