Specialist Advice on Settlement Agreements from ELS

A settlement agreement is an agreement whereby a current or former employee or worker agrees to waive or settle a claim (or more usually, all possible claims) against the employer in return for a payment, usually on termination of employment. It records the intentions of the employer and employee at the end of employment, redundancy, or following a grievance. It typically sets out terms of financial settlement, compensation, payment in lieu of notice sum and a clause foregoing the employee’s rights to bring a claim before the Employment Tribunal.

The benefit of a settlement agreement to the employee is that they receive a guaranteed amount of compensation in return for settling their claims. The advantage to the employer of getting a settlement agreement is that the employer can be sure the employee will accept the settlement and not seek further compensation.

Our team offer a same day/next day service to ensure your agreement is checked, approved by you and your employer as soon as is reasonably practical after making your initial enquiry.

From 6 April 2020, termination awards which are taxable under section 403 of ITEPA 2003 are subject to a class 1A NICs charge. This applies to all termination payments except payments received on or after 6 April 2020 in respect of employment that was terminated before that date; or payments that are received in instalments where the first instalment was received before 6 April 2020. You will usually have to pay tax and national insurance on any wages and holiday pay and generally, the first £30,000 of a payment made as compensation for loss of employment is tax-free. Redundancy payments up to £30,000 (both contractual and statutory) are usually tax-free.

For a settlement agreement to be valid, certain conditions (which are set out in section 203(3) of ERA 1996, with corresponding provisions in other statutes) must be met. The agreement must be in writing, must relate to a “particular complaint” or “particular proceedings” and the employee must have received legal advice from a relevant independent advisor on the terms and effect of the proposed agreement, and its effect on the employee’s ability to pursue any rights before an employment tribunal. The agreement must identify the advisor, state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied, and must be signed by your advisor to confirm that advice has been given.

We offer a free initial consultation to discuss your situation, your objectives and your options. If you are happy with the agreement and you simply want legal advice on the contents and us to sign off the agreement, we will only charge a fee in line with the employer’s contribution set out in your settlement agreement. If more in-depth advice and/or negotiation is required, we will set out our fee in advance and will always seek to have the employer cover this cost, wherever possible.

Initially, we will need to see a copy of the settlement agreement and a copy of your employment contract (if you have one). To set you up as a client we are also obliged to check your identity and address so you should provide us with your original passport or photo card driving licence and a recent utility bill.

There is no general legal right to a reference, good, bad or indifferent. Usually an employer will agree to a clause in the settlement saying the employer will provide reference in the form attached to the settlement agreement, upon request from a prospective employer, and we can help negotiate the terms of a reference on your behalf.