Agreeing a Settlement Agreement Whilst Continuing to Work for the Employer

Difficulties in the workplace are bound to arise. It’s not necessarily anyone’s fault but they they can be problematic both for employers and employees, leading to

• stress
• low morale and
• lack of productivity.

The difficulties can often be resolved by way of a grievance procedure or by good management. The employee can then continue to work for the employer. However, a sensible employer may still want the employee to agree a settlement agreement, even though the employment is continuing.

Using a Settlement Agreement when the Employment is Ongoing

Usually a settlement agreement is used when the employment terminates but this doesn’t have to be the case.

Sometimes, an employee can agree a settlement agreement and continue in work. This is because settlement agreements can be used to resolve almost any workplace dispute, irrespective of whether or not the employment is continuing.

The types of dispute that you may experience while the employment is ongoing may be:

• you have been the victim of harassment in the workplace
• your employer has been discriminating against you by not allowing you the same opportunities as your colleagues
• there has been a disagreement about how your commission or bonus should be calculated.

Any of these situations could give rise to a claim against your employer. Even after the cause of the dispute is dealt with, you may still be able to claim compensation. For example:

• your employer may dismiss the perpetrator of harassment but you would still be entitled to claim compensation for the injury to feelings
• the discrimination stops but you may be entitled to compensation for lost earnings that resulted from the historic discrimination
• you reach a compromise on how much commission or bonus you should be paid

In each of the above examples, a prudent employer will want to make sure that any settlement reached is clearly recorded and they you waive your right to bring any kind of claim. This is best done by way of a settlement agreement.

The tax situation is different

Many of the tax advantages of entering into a settlement agreement only apply if the employment is ending.

Most payments that are made whilst the employment is ongoing, whether expressed as compensation or otherwise, are likely to be fully taxable. This is because they will be deemed to be part of the employee’s remuneration. These payments include:

• lost earnings
• contribution towards the legal costs of getting advice on the settlement agreement.

However, compensation for discrimination should be tax free. Discrimination includes less favourable treatment on the grounds of:

• Age
• Disability
• Gender reassignment
• Marriage and civil partnership
• Pregnancy and maternity
• Race
• Religion or belief
• Sex and sexual orientation

Damages for injury to feelings arising out of the discrimination can usually be paid tax free.

Similarly, damages relating to a personal injury in the workplace can also be paid tax free.

Would You Like a Free Consultation About Your Settlement Agreement?

If you’ve been offered a settlement agreement, you’ll 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.

From a landline: 0800 531 6050

From a mobile: 0330 333 6050

Alternatively, complete the form below and we’ll contact you.