Agreeing a Settlement Agreement to End Your Employment

If you’re unhappy in your current role, you may be feeling like it’s time to leave. It may be that the best approach is to enter into a settlement agreement.

Your employment will continues unless your employer dismisses you or you decide to resign. A settlement agreement is usually better than both of these options.

Why is a settlement agreement better than being dismissed?

For you as an employee, a dismissal won’t look good on your employment history. Even if it’s undeserved, it may be difficult to persuade a prospective employer that you were treated unfairly.

When a settlement agreement is used, you can agree a reference and a reason for termination that protects your reputation.

From an employer’s point of view, they will won’t want to risk an employment tribunal claim if they can avoid it. They would have to prove that they had a fair reason to dismiss you. There are only 6 potentially fair reasons recognised by law:

1. Misconduct
2. Poor performance
3. Redundancy
4. Continued employment would break the law (eg someone is employed as a lorry driver but loses their licence)
5. Retirement (in some circumstances)
6. Some other substantial reason (eg a personality clash in the work place or a business re-organisation)

Even if they can show a fair reason, they have to show that they’ve followed a fair procedure before deciding to end your employment.

If your employer gets it wrong, it could leave them vulnerable to an employment tribunal claim and  the only way that they can be sure you can’t bring a claim is if you sign a settlement agreement.

This means that there is plenty of incentive to agree a settlement, both for you and your employer.

Why is a settlement agreement better than resigning?

If you resign from your role, your employment comes to an end when your notice period expires. You should be paid everything you’re entitled to under your employment contract.

You would still be able to claim compensation in an employment tribunal but this may not be an attractive option compared to a settlement agreement.

Without a settlement agreement, could miss out on the opportunity to agree:

• a compensation payment
• a payment in lieu of notice
• a reference
• help with finding another job

What to do if your employer offers you a settlement agreement

If your employer offers you a settlement agreement, they should also give you 10 days in which to consider it. During that time, you should get legal advice. You need to know:

• Is the figure they’re offering you fair?
• Should you negotiate?
• Is there scope for the payments to be made in a tax efficient way?

Most solicitors will offer you a free initial consultation. This is enough time for you to explain your situation and for the solicitor to advise you on how best to respond.

Armed with that advice, you can then respond to your employer. Often you can do this directly or you may prefer you solicitor to respond.

How to ask your employer for a settlement agreement

If your solicitor hasn’t offered you a settlement agreement, you may want to take the initiative and ask for one yourself.

The best way to ask your employer for a settlement agreement is to start with a ‘protected conversation‘.

A protected conversation is an ‘off the record’ chat about the possibility of a settlement agreement.

It’s an opportunity for both you and your employer to be honest about the employment relationship. Maybe both of you feel that it’s time to go your separate ways.

Let your employer know how much you want in a settlement agreement. Start high (but reasonable). Be prepared to negotiate down. Hopefully you can reach an agreement that both you and your employer are happy with.

What next?

If you and your employer reach an agreement in principle, then you should expect your employer to provide the necessary document. This may take a few days. They may need to instruct lawyers to draft it.

Once you receive it, you will then need to get legal advice on it. A settlement agreement is only valid once you’ve had advice from a qualified lawyer.

The settlement agreement will include a date for the termination of your employment. Once it has been signed by all parties, your employment will come to an end on the agreed date without the need for a resignation or dismissal.

Contact us to find out how much you should get in your settlement agreement

If you have received a settlement and you’d like to find out more about how much you should expect to receive, contact us for a free consultation.

We advise clients throughout the UK. Call us now for a free consultation.

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