Settlement Agreement Packages

Settlement Agreement Packages – Have you been offered a Settlement Agreement Package by your Employers?

If so, Rothera Sharp can help. Our Employment Law Team regularly acts for Employees on Settlement Agreements. We can talk you through the legal requirements and ensure you receive impartial advice and all of the circumstances are reviewed for you.

What is a Settlement Agreement?

Formally known as a Compromise Agreement, a Settlement Agreement is an arrangement whereby an employer and an employee agree to mutually terminate their working relationship in return for payment and signing away rights to take issues to an Employment Tribunal.

Employers usually offer employees Settlement Agreements where they need to be sure that there is no likelihood of employment claims as a result of the ending of the employment relationship. It can be a case of the employer wanting certainty or the employer and employee both know that there have been irregularities in the ending of the relationship which could give rise to a claim and they want to settle it before proceedings are even started.

Settlement Agreements can be an effective way of resolving a variety of employment-related disputes and can provide an effective way of avoiding legal proceedings and the consequential time and costs of doing so whilst providing the employee with a severance package.

A Settlement Agreement is the only way of the employer settling a potential employment dispute where no proceedings have been started and notice has not been given to ACAS under the Early Conciliation procedure. They usually involve the payment by the employer to the employee of an agreed amount of money in return for the employee agreeing not to take court or tribunal proceedings. The package can also include the provision of an agreed reference and a warranty from the employer to confirm that they will not deviate from the essence of that reference when approached for references in the future and terms requiring the employee and employer to keep the terms of the agreement confidential.

The employee must seek independent legal advice before entering into a Settlement Agreement. If a solicitor does not provide a certificate that he or she has given this independent advice a Settlement Agreement is not binding. The employer normally pays most if not all of the employee’s legal costs incurred on taking advice.

It is important that both employer and employee know the tax implications of the various payments that are to be made. Usually if the payment is a genuine severance payment the first £30000 can be paid free of tax and National Insurance. Other payments e.g. notice pay and holiday pay are taxable. This is dealt with in more detail on the HMRC website at http://www.hmrc.gov.uk/manuals/eimanual/eim12800.htm

Settlement Agreement Packages can be an effective way of resolving a variety of employment-related disputes and can provide an effective way of avoiding legal proceedings and the consequential time and costs of doing so whilst providing the employee with a severance package.

As the Agreement is final, it is important that you are advised on all terms and conditions to ensure you understand exactly what you are agreeing to and what rights you are signing away. You are required to take independent legal advice, usually paid for by your employer, to protect you from an unscrupulous employer. Without such advice the agreement has no legal effect.

For further information why not download our Free Settlement Agreements Guide.

For further information on how our Employment Law Team can help with Settlement Agreement Packages, call us on Nottingham 0800 088 6280 send us an email enquiries@rotherasharp.co.uk