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You are here:

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 2. Employment law
 3. Dismissals and redundancies
 4. Settlement agreements

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GO TO PERSONAL LAW
 * Starting up
 * Sector specific law
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 * Finance and business strategy
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 * Marketing and selling
 * Contracts, disputes
 * Commercial premises law
 * Health and safety
 * Data protection and IT
 * Intellectual property
 * Exit strategies
 * Personal law
 * More

Starting up
Setting up a business involves complying with a range of legal requirements.
Find out which ones apply to you and your new enterprise.

Sector specific law


There are several pieces of legislation that apply to farm shops. They cover
areas such as licensing, food safety, food labelling and waste.


Business ownership and management
While poor governance can bring serious legal consequences, the law can also
protect business owners and managers and help to prevent conflict.
Also in this topic
 * Administrative requirements
 * The board of directors
 * Shares and shareholders
 * Shareholder and boardroom disputes
 * Family businesses

Finance and business strategy
Whether you want to raise finance, join forces with someone else, buy or sell a
business, it pays to be aware of the legal implications.
Also in this topic
 * Raising finance
 * Floating your business
 * Buying another business
 * Mergers, joint ventures and cartels
 * Dealing with insolvency

Employment law
From pay, hours and time off to discipline, grievance and hiring and firing
employees, find out about your legal responsibilities as an employer.
Also in this topic
 * Recruitment and employment contracts
 * Pay and pensions
 * Working time: hours, leave, flexible working
 * Employment policies
 * Sickness and sick pay
 * Maternity, paternity and adoption
 * Discrimination
 * Managing homeworkers, remote workers, lone workers
 * Information and consultation
 * Discipline and grievance
 * Dismissals and redundancies
 * Employment tribunals

Marketing and selling
Whether you are selling to businesses or consumers, you must comply with laws
designed to protect customers and ensure acceptable trading standards.
Also in this topic
 * Marketing and advertising
 * Consumer protection
 * Distance and online selling
 * Using agents and distributors
 * Importing and exporting
 * Offering credit to consumers

Contracts, disputes
Commercial disputes can prove time-consuming, stressful and expensive, but
having robust legal agreements can help to prevent them from occurring.
Also in this topic
 * Business contracts
 * Dispute resolution
 * Going to court
 * Debt recovery
 * IP disputes

Commercial premises law
Whether your business owns or rents premises, your legal liabilities can be
substantial. Commercial property law is complex, but you can avoid common
pitfalls.
Also in this topic
 * Your premises options
 * Getting out of a lease
 * Rent reviews
 * Managing your premises
 * Planning permission and building controls

Health and safety
With information and sound advice, living up to your legal responsibilities to
safeguard your employees, customers and visitors need not be difficult or
costly.
Also in this topic
 * Managing health and safety
 * Carrying out a health and safety risk assessment
 * Environmental regulations

Data protection and IT
As information technology continues to evolve, legislation must also change. It
affects everything from data protection and online selling to internet policies
for employees.
Also in this topic
 * Data protection
 * IT law

Intellectual property
Businesses large and small have intellectual property. It can be a key business
asset that requires sufficient protection if you are to maximise its full value.
Also in this topic
 * Trade marks
 * Copyright
 * Design right and registration
 * Patents

Exit strategies
Knowing how and when you plan to sell or relinquish control of your business can
help you to make better decisions and achieve the best possible outcome.
Also in this topic
 * Succession planning
 * Selling your business
 * Exiting a family business

Personal law
From bereavement, wills, inheritance, separation and divorce to selling a house,
personal injury and traffic offences, learn more about your personal legal
rights.
Also in this topic
 * Employment
 * Wills
 * Divorce and family law
 * Inheritance tax and family trusts
 * Lasting power of attorney
 * Family bereavement
 * Claiming an inheritance
 * Probate, executors and estate administration
 * Personal injury
 * Residential property law
 * Traffic offences

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 1. Home
 2. Employment law
 3. Dismissals and redundancies
 4. Settlement agreements


SETTLEMENT AGREEMENTS

Reviewed by Tina Chander, head of employment law, Wright Hassall



A settlement agreement is a legally binding confidential agreement between an
employer and employee. Under a settlement agreement a compensation payment is
typically given to the employee by the employer. In return they agree to waive
their employment rights and not to pursue any employment tribunal claims arising
from their employment or its termination.

A settlement agreement can also provide additional protection for employers,
such as reaffirming post-termination restrictions and duties of confidentiality,
while preventing employees from making defamatory comments about their
ex-employer.

(The employee is not prevented from making any claims in respect of accrued
pension rights, latent personal injury, or enforcement of the settlement
agreement itself.)


1. WHEN MIGHT AN EMPLOYER USE A SETTLEMENT AGREEMENT?

There are a range of circumstances in which an employer will consider using a
settlement agreement. For example, when undertaking a disciplinary process,
especially if the employee seems likely to bring a claim against the employer.
Or when terminating the employment of an employee who has been on long-term sick
leave, to avoid the risk of the employee claiming against the employer for
discrimination.

Settlement agreements can offer employers a quick method of terminating
employment, avoiding what otherwise might be a long and difficult process.




2. ARE THERE ANY RISKS INVOLVED?

If an employer offers a settlement agreement without having previously raised
concerns about the employee’s work performance or conduct, the employee may be
able to claim constructive dismissal (on the legal basis that the settlement
agreement discussion is evidence that the employer has breached ‘the duty of
mutual trust and confidence that exists between them’).

Nor can an employer expect to get around this problem by having an ‘off the
record’ discussion, or by stating that any documents are ‘without prejudice’ (a
legal term which means the document cannot later be admitted in evidence before
a court or employment tribunal without the consent of both parties concerned,
should settlement negotiations subsequently break down and the dispute come
before the court or tribunal).

So the employer needs to be sure that there is evidence of an ‘existing dispute’
before commencing any discussions about the possibility of a settlement
agreement. Commencing a formal process such as a disciplinary process is a
common way for employers to provide clear evidence of a dispute.

The ACAS guidance on settlement agreements sets out situations which can occur
during settlement agreement negotiations that would then entitle an employee to
refer to the conversations and submit the relevant documents as part of an
employment tribunal claim. For example, an employer placing undue pressure on an
employee to accept an agreement.


3. HOW MUCH SHOULD AN EMPLOYER OFFER TO PAY UNDER A SETTLEMENT AGREEMENT?

There is no maximum amount which should be offered to an employee under a
settlement agreement, however as a minimum the employee should be offered all of
their basic contractual entitlements. This includes salary, notice pay, accrued
but unused holiday pay and any statutory redundancy entitlements (if the
agreement is being offered in the context of a redundancy situation).

It is also recommended that, in addition, an employer offers a tax-free payment
to the employee. This is in exchange for them waiving their employment rights
and it encourages them to enter into discussions in the first place.

(The first £30,000 of an ex-gratia payment is tax-free. The payment can be made
by the employer to an employee who is leaving the business after a dispute or
redundancy situation. It is ‘ex-gratia’ because there is no acceptance of blame
and no legal requirement to make such a payment.)


4. WHEN SHOULD THE EMPLOYEE EXPECT TO RECEIVE THE MONEY?

For ex-gratia payments, the employer can set the timescale for payment. It is
usually paid between 14 and 28 days of the settlement agreement being signed by
the employee and their adviser. But it can be longer or shorter and is a point
for negotiation.

In terms of contractual payments that are due (for example salary, holiday and
notice pay), the employer can continue making payments through the payroll on
the usual payroll date. If the employee is receiving these payments ‘in lieu’
(eg receiving extra salary instead of taking holiday that is owed), it is
entirely at the employer’s discretion to run them through payroll at the usual
time or pay them alongside the ex-gratia payment.


5. WHO PAYS FOR THE LEGAL ADVICE AN EMPLOYEE HAS TO TAKE ON A SETTLEMENT
AGREEMENT?

Generally, an employer will make a contribution towards legal fees under the
terms of the settlement agreement. The average contribution is within the region
of £350 - £500 plus VAT depending on the complexity of the agreement. For
example, if the agreement covers shares the employer can expect to pay more
towards the employee’s legal fees.

If the termination date is a long way into the future, the employer may require
the employee to sign a ‘reaffirmation letter’ on or shortly after termination.
This letter is to confirm that the terms of the settlement agreement still apply
in full, as in theory a new claim against the employer could have arisen in the
intervening period. In general, the employer can expect to pay a further £150
plus VAT in respect of this letter.


6. WHAT IF AN EMPLOYEE REFUSES TO SIGN THE SETTLEMENT AGREEMENT?

If an employee refuses to sign a settlement agreement, the employer should
continue with whatever disciplinary or capability process they have openly
commenced.

If the ‘without prejudice’ rules apply (see 2, above), the employee’s refusal
will not harm the employer, as the employee will not be able to use the
discussions against the employer as part of any tribunal claim.

However, if the ‘without prejudice’ protection is not applicable, either because
there was no open dispute or because the employer put undue pressure on the
employee to sign the settlement agreement during the negotiations, the employee
may use the settlement agreement and all associated correspondence to support a
claim against the employer.


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Browse topics: Employment law

Recruitment and employment contracts (16)
Pay and pensions (15)
Working time: hours, leave, flexible working (16)
Employment policies (8)
Sickness and sick pay (9)
Maternity, paternity and adoption (9)
Discrimination (8)
Managing home workers, remote workers, lone workers (8)
Information and consultation (3)
Discipline and grievance (14)
Dismissals and redundancies (20)
Employment tribunals (6)


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