What is a settlement agreement? Why do I have one?
A settlement agreement is designed to achieve a clean break between employer and employee. This can often mean avoiding a process such as redundancy, or ending an ongoing or potential dispute between employer and employee.
Using a settlement agreement to come to an arrangement that both parties are satisfied with usually means that, in return for a payment, the employee will forfeit their right to bring an employment tribunal (or any other claim) against the employer in relation to their employment or the termination of their employment. So, you need to be clear on what rights you are waiving and that all the terms of the agreement are reasonable before you sign.
What the law requires
Our role is not simply to sign off the settlement agreement. We are required to give certification which says:-
- We have advised the Employee of the terms and the effect of the settlement agreement, and in particular its effect on the Employee’s ability to pursue a claim before an Employment Tribunal.
- There is in force a contract of insurance covering the risk of a claim by the Employee in respect of loss arising in consequence of the advice.
This means we must spend time understanding your situation to enable us to give that certification.
What we will do
We will review your settlement agreement and any relevant employment documents. We will then arrange a meeting with you (either remotely or in-person at our Tadley office) where we will go through the settlement agreement with you in detail to ensure you understand what you are signing and the rights you are waiving to make a claim against your employer. Then, subject to the pricing option applicable (see below), we will discuss with you any amendments and/or negotiations you may wish to enter in to ahead of signing your agreement.
Types of issues that can arise
- Is the compensation offered adequate?
- Are you adequately protected in the event of a demand for tax from HMRC?
- Do oral references have to be consistent with written references?
- What happens regarding bonus, commission, shares and stock options?
- What effect will restrictive covenants have on your ability to get a new role?
- Will the wording undermine your ability to claim income protection insurance or benefits?
What it costs
Most employers offer a contribution towards legal costs within the terms of a settlement agreement, frequently £500 plus VAT which usually covers 1.5 – 2 hours of our work.
Our fee for this service will depend upon the complexity of the background and amount of material we must review.
If you are satisfied with the agreement and if the background is straightforward, the employer contribution is likely to cover our advice. However, where the terms offered need to be updated or adjusted to better protect you, or if you are seeking help to negotiate a better exit package, our fees may exceed the contribution from your employer. Sometimes employers will increase their contribution but where they do not, you will be liable for our additional costs.
The following is an indication of costs assuming the termination date is one month or less away:
| Standard advice with straightforward background no negotiation and no or minimal amendments | £500 plus VAT |
| Advice with straightforward background modest negotiation and/or amendments | £500 – £1000 plus VAT |
| Advice with non-straightforward background and/or significant negotiation and/or amendments to the Agreement | £1000 plus VAT & over |
| If the settlement agreement requires a second signature at a later date (re-affirmation) | Typically, £250 plus VAT |
Costs over £500 plus VAT will be calculated at the solicitor’s hourly rate, according to the amount of time spent in negotiation and agreeing amendments. Further details can be obtained upon enquiry.
What you need to do next
Ahead of reviewing your agreement and advising you, we will need to onboard you as a client. Due to the regulations governing all law firms in the UK, we will need you to agree and sign both our engagement letter and our terms of business, provide two forms of ID and carry out an anti-money laundering check.
We hope this has been helpful and please do not hesitate to get in contact with the Employment Team if you have any questions.
If you need employment advice, please contact the Employment Team on employment@rowberrymorris.co.uk or by telephone on 0118 951 6625.