What Is a Settlement Agreement and Why Do You Need It?

You’re pulled into a meeting and asked to leave your job.

Your manager explains why the decision has been made and you are left feeling shocked.

Your manager offers you a settlement agreement, but you have no idea what to do next…

Well, you’ve come to the right place. I hope the pointers below can help you.

What is a settlement agreement?

A settlement agreement is a legally binding contract used to end an employment relationship on mutually agreed terms.

By signing the settlement agreement, an employee won’t be able to make legal claims against their employer in the employment tribunal after the termination of the contract. In return, the employee usually gets a sum of money from the employer.

A settlement agreement is essentially a contract that stops employees from bringing claims against their employers.

So you mustn’t sign documents without understanding your employment rights. Especially if you feel like you’ve been dismissed unfairly or that the exit package that the employer is offering isn’t sufficient.

What should the settlement agreement contain?

Every settlement agreement will depend on individual circumstances but the standard terms of the settlement agreement are the following:

• The outstanding balance of the salary, notice pay, bonuses, commission and holiday pay of the employee

• A termination payment, tax-free up to £30,000, that will be paid by the employer to the employee for agreeing to terminate the contract

• A Confidentiality or Non-Disclosure clause may be included which is usually of benefit to both parties

• A non-derogatory clause may be incorporated to prevent both parties from saying unpleasant things about each other

• The employee will usually waive most rights that he or she may have against the employer

• A contribution by the employer towards the legal fees

• A settlement agreement must be signed by an independent legal advisor

Negotiating a settlement agreement can often appear daunting but, with the right knowledge and approach, it can provide a favourable resolution to workplace disputes. Teaming up with experienced settlement agreement solicitors can ensure that your interests are effectively represented.

Do I have to accept a settlement agreement offered by my employer?

No, you don’t have to accept the offer that your employer makes. Especially if you think you aren’t getting a fair deal.

Before entering into negotiations, it’s essential to understand your legal standing and the strength of any claims you might have against your employer. This knowledge will guide you in setting realistic expectations for the negotiation.

Resources like this comprehensive guide on negotiation tactics can provide valuable insights into strategies that might be applied to your situation.

Seek professional advice

It’s highly recommended to seek the guidance of legal professionals who specialise in employment law and settlement agreements. They can provide an objective assessment of your case, advise on the best course of action, and negotiate on your behalf. A solicitor can also ensure that the agreement complies with current legislation and protects your interests.

Prepare for negotiations

Preparation is key to successful negotiations. This involves gathering relevant documents and evidence that support your position and claims.

It also means preparing mentally and emotionally, as negotiations can be challenging and stressful. Understanding common negotiation techniques and how to counteract them can be beneficial.

Communicate clearly and confidently

Be clear about what you want, why you deserve it, and be prepared to compromise where necessary. However, ensure your fundamental rights and needs are met. It’s about finding a balance that respects both parties’ interests.

Know when to walk away

Not all negotiations will end in agreement, and it’s important to recognise when the offered terms are not in your best interests.

If you believe the settlement doesn’t reflect your value or fails to meet your minimum requirements, be prepared to walk away.

Your solicitor can advise you on the next steps, which may include pursuing a claim through legal channels.

Document everything

Throughout the negotiation process, keep detailed records of all communications, offers, and counteroffers. This documentation can be invaluable, particularly if negotiations break down and legal action becomes necessary. It also ensures that there is a clear record of what has been agreed upon for both parties.

Will I need a solicitor and do I have to pay for one?

Settlement agreements are not legally binding unless the employee has received independent legal advice about it.

Not only will the solicitor be able to give you legal advice, and help you understand the legal jargon, but they can even deal with the employer directly.

Employers usually agree to pay towards your legal fees and contribution of between £200 and £500 is common.

Make sure that employer contribution is stated in the settlement agreement.

Will the settlement agreement affect my future job opportunities?

A settlement agreement shouldn’t affect your future employment.

In most cases, a settlement agreement can be the best form of exit from a company as you will secure a sum of money, an agreed termination date, and a reference to support you with any future job applications.

Have you ever been unexpectedly fired? How did you handle it?