Settlement agreement solicitors

Our experienced settlement agreement solicitors provide thorough, in-depth advice on settlement agreements, from initiation through to completion.

What is a settlement agreement?

A settlement agreement (formerly known as a compromise agreement) is a legally binding agreement between an employer and an employee. Under the terms of the agreement, the employee gives up their rights to bring future claims against their employer.

Usually, the employee will receive a sum of money in return and, at the same time, leave the employment of the employer under terms which are agreed and set out in the settlement agreement.

What are the benefits of a settlement agreement?

A settlement agreement is often a clean, dignified and quick way to end an employment relationship. With many businesses looking to cut costs, we are seeing a significant increase in the use of settlement agreements.

What should be included in a settlement agreement?

Settlement agreements are often lengthy and complex agreements that address a number of issues that arise out of the employment relationship and its termination. Below we have set out some of the key issues to consider when entering into a settlement agreement.

Our settlement agreement solicitors can provide expert advice on what should be included in a settlement agreement.

The termination date

If the employment is ending, the termination date will need to be agreed and defined in the settlement agreement.

Outstanding salary and holidays

When will any outstanding salary be paid? Will you be required to take your holidays during your remaining period of employment?

Benefits

How will any benefits you received be dealt with under the settlement agreement? For example, company car, private health insurance.

Notice period/pay

Will you be required to work out your notice period (or part of it)? Or will you be leaving ith immediate effect (or partway through) and receiving a payment in lieu of your notice (or the unexpired part of that notice)?

Deductions

Is the employer proposing to make any deductions from your final salary/compensation payment? For example, travel loan, training costs.

Pension

You will need to understand what impact leaving your employment will have on any pension.

Tax

It is important that any payments made under the settlement agreement are structured as tax-efficiently as possible. Outstanding salary, notice pay and holiday pay will be subject to tax and national insurance contributions in the normal way. However, under HMRC rules, the first £30,000 of any compensation payment for loss of employment, inclusive of any statutory redundancy payment, can be paid tax-free. In complex termination arrangements, you may well need specialist tax advice.

Claims

It is important you fully understand what claims you are actually signing away. You may well want to exclude certain claims from being ‘settled’ (such as an existing personal injury claim).

Restrictive covenants

Your contract of employment may already contain restrictive covenants and the settlement agreement may well deal with how these will apply moving forwards. If not, you may want to try and seek to limit the scope of any existing restrictive covenants as part of any agreement. It is also quite common for the employer to look to introduce new restrictive covenants via the settlement agreement. Any new restrictions will therefore need to be carefully considered. Any new restrictions may also give rise to tax issues.

Directorships

The settlement agreement will often require you to resign any directorships at the same time as leaving your employment. You will need to understand the impact, if any, that resigning any directorships will have.

Shareholdings/share options

If you are a shareholder, you will need to carefully consider how your shares will be dealt with as you may well be required to sell your shares back on the termination of employment. If you have any share options, your reason for leaving will also be important because this may well determine what, if anything, you receive in consideration for your share options (for example as a ‘good leaver’).

Confidentiality

The settlement agreement may well simply refer to any existing confidentiality provisions in your contract of employment or, alternatively, seek to introduce new confidentiality provisions. You will need to understand what information is confidential and what is not.

Reference

The provision of a good reference is often a key issue and may well involve a certain amount of negotiation.

How our settlement agreement solicitors can help you

Settlement agreements require careful, expert handling to achieve an outcome that works for both parties, based on sound legal advice.

A failed settlement agreement helps no one and leaves the door open to legal claims — precisely the outcome both parties would wish to avoid.

We can provide you with advice on all the legal issues which can arise out of a settlement agreement as well as how to progress any negotiations.

We cover the whole of the United Kingdom from our offices in Birmingham, Cardiff, Glasgow, Leeds, Leicester, Liverpool, London, Manchester and Newcastle. We regularly advise employers and employees (particularly senior executives) on settlement agreements.