Need Advice on a Settlement Agreement? 5 Things You May be Asked

As an employment solicitor, I’m often asked to advise employees on their settlement agreement.

Broadly speaking clients can fall into one of two categories:

  • Client 1: “Everything’s agreed. I don’t really want legal advice but I’ve been told I have to get it. Let’s get this over as quickly as possible”
  • Client 2: “They’ve got my name and address right but other than that I want to challenge every clause and get as much out of them as I can.”

OK. That’s a bit of an exaggeration (but only a bit) and most clients are somewhere in the middle.

Either way, I have a checklist of questions that I run through with clients to make sure I give the right advice and they get the best deal. If you’re intending to get advice on your settlement agreement, here are 5 questions you’re likely to be asked.

1. How long have you been employed?

This affects everything.

By signing the settlement agreement, you give up all of your employment rights. If you’ve been employed less than two years, your employment rights are significantly limited anyway. This means that there isn’t much incentive for the employer to increase the payment.

They could simply terminate your employment with the required notice and you could do nothing about it. No matter how unfairly you feel your employer has treated you, without more than two years’ service, there’s not much you can do about it, which means you may be better off accepting the settlement agreement.

2. How long do you expect to be out of work?

The most significant issue that an employment tribunal would consider is your lost earnings for your time out of work.

OK. I realise you may not want to pursue an employment tribunal claim but if you know how much compensation you’re likely to get in a successful claim, it give you an idea of a figure you should be aiming for. The likely amount of your lost earnings is one of the factors that will affect the amount you should expect in a settlement agreement.

If you’re likely to find a job straight away, your compensation is likely to be low and may be less than you’re being offered in the settlement agreement. Even if you would have a cast iron case for unfair dismissal, you’d be better off accepting the settlement agreement.

3. What are the circumstances leading to your employer offering you the settlement agreement?

This question only really needs to be asked after you’ve answered the first two questions.

If you have been employed more than two years and you’re not receiving as much as you would get in an employment tribunal, you need to find out whether there’s scope for negotiating. These are the kinds of questions you need to be ready to answer:

  • Have you been dismissed?
  • If so, did the employer follow a fair procedure and have reasonable ground for the dismissal?
  • If you haven’t been dismissed, has there been a breakdown of the relationship?
  • Is the employer at fault?
  • What happens if you don’t sign a settlement agreement?

Give the full story. Provide your employment lawyer with any disciplinary and grievance letters. Only then can they really advise you on what you should accept by way of a settlement agreement.

4. Can I see your employment contract?

The content of the employment contract can affect the settlement agreement in a number of ways. Here are a couple of things that will need to be checked

i) Is there a payment in lieu of notice clause?

Often a settlement agreement includes payment of a taxable payment in lieu of notice (PILON). However, PILONs don’t have to be taxable and your solicitor may be able to negotiate a re-wording of the settlement agreement to have the same amount paid tax free.

Alternatively, it may be that you’re receiving a tax free PILON and you need to aware of any risk that HMRC may claim that it should have been taxed.

ii) Are there any restrictions that apply after the end of employment?

Many employment contracts contain restrictive covenants that prevent the employee from working for a competitor, poaching their customers or interfering with suppliers.

Often the settlement agreement will contain a clause stating that these restrictions will continue to apply. If so, you’ll need to ask your solicitor to advise on how the restrictions may affect you. It may be possible to reduce or extinguish the restrictions as part of the negotiating process.

5. Where to send the invoice

Usually the employer agrees to pay the employee’s legal costs in full.

However, you will need to give your adviser the correct contact details at your employer. Otherwise, you may find that the invoice goes to the wrong person and gets lost somewhere in the system. Getting a name and address ensures that the invoice goes where it should and you get paid on time.

Would You Like a Free Consultation About Your Settlement Agreement?

If you have received a settlement agreement, you will need to make sure you receive legal advice on it. We offer a free initial consultation.

Our advice will include:-

  • An explanation of how the settlement agreement will affect you;
  • Our opinion on the suitability of the offer and whether there is scope for negotiating a higher settlement for you;
  • Consideration of the tax implications and whether, the payments are being made in the most tax-efficient way.

We advise clients throughout the UK and there’s no need to make an appointment. Call us now for a free consultation.

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