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A Closer Look at Settlements Agreements

Below, KLG Law answers some of the questions you may have about settlement agreements, whether they are applicable to you, and what may be involved in the next steps

This section will cover the following

Note: Where the ACAS Early Conciliation process has started or tribunal proceedings have begun, a COT3 agreement will be used instead. This is issued by ACAS and is very similar in effect to a settlement agreement. Contact us for further guidance on COT3 agreements.

What are the benefits of signing a settlement agreement?

  • Quick and efficient conclusion to your matter
  • Circumventing the employment tribunal process, which can take over a year to reach a conclusion
  • Results in a guaranteed amount of compensation, as the amount is negotiated to ensure a clean break in the employee- employer relationship.

If a settlement is reached early on it will save you legal fees, stress, and time.
In most cases, settlement agreements are used when there has been irreparable damage done to the employer-employee relationship, and termination of the employee’s contract is under consideration. Settlement agreements are also used during redundancy to confirm the amount payable to the employee as redundancy pay, whether it be statutory redundancy pay or enhanced redundancy pay.

Alternatively, they can also be used to settle an on-going workplace issue, for example, a disagreement over holiday pay or fringe benefits.

When should a settlement agreement be used?

The use of a settlement agreement is a matter of judgement. 

It is advised that any suggestion to an employee of using a settlement agreement follows a review of their work. Alternatively, settlement agreements are preferable when both parties have made it clear that there is a need for a ‘clean break’, and where there is scope for amicable terms to be agreed.

It should also be borne in mind that employees themselves may suggest making use of a settlement agreement. While this should not be agreed to or dismissed unnecessarily, employers should consider whether or not this is in the interests of their business.

What do I need to include in a settlement agreement?

  • Agreed reference and financial payment
  • Details of the value of the payment, whether this is taxable
  • Timetable for payment to be made

As matter of law, employers are not required to provide a reference to employees as part of a settlement agreement. However, a reference can help when agreeing the terms. Any reference should be accurate, fair and true.

It is worth noting there are some rights that cannot be waived, such as the right to bring a claim for personal injury and your pension.

What are the legalities of settlement agreements?

  • It is vital that the terms of any settlement agreement presented to an employee are in writing and are the subject of independent legal advice. You should encourage your employee to seek this advice from a lawyer familiar with the use of settlement agreements. For employers this is also important as court proceedings can only occur if they have been fully advised of this by their own legal advisor.
  • Employees are not obliged to accept the terms of their settlement agreement.
  • Employers must ensure that both they and their employees sign any settlement agreement: it will not be valid or enforceable unless it bears the signatures of both parties.

What follows from a settlement agreement being signed?

  • If both you and your employee are able to agree the terms of a settlement agreement, and both sign the document, the agreement will be legally valid.
  • It is then proper for you to notify the employee in question of when they will be expected to vacate their post – this is often described as the ‘Termination Date’ within the agreement.
  • It is advisable to remind the employee of the substantive terms of the agreement. For example this may include when a reference will be provided and how financial compensation (if any) will be provided.

Handshake

Why do I need a solicitor?

For a settlement agreement to be legally binding contract, the employee must receive advice from an independent legal adviser (Solicitor or Legal Executive). The settlement agreement will not be valid without a legal adviser, and therefore will not be binding on either party.

At Kalra Legal Group, we have employment law solicitors who can provide you with this independent legal advice in person or over the phone. Our employment specialist solicitors always take their time to ensure the individual is getting the best package possible in their specific circumstances. They will go through the agreement with you and explain the rights you are waiving in exchange for signing this agreement, and they will explain your obligations under the agreement.

At Kalra Legal Group we hold the necessary indemnity insurance and certifications to provide this independent legal advice and we have great experience in negotiating increased compensation. Contact our team of employment solicitors today for further advice on your settlement agreement.

What is the cost of signing a settlement agreement?

In most settlement agreements the employer agrees to pay a contribution towards legal fees, as they recognise independent legal advice is a requirement for the agreement to be legally binding. Our fees are unlikely to exceed the legal contribution stated in the agreement.

  • Fees with KLG start at £250 plus VAT
  • The fee will vary depending upon the complexity of your agreement but in most cases our fees will be entirely covered by your employer.
  • If we believe our fees are likely to go over the employer’s contribution to legal fees, we can request additional fees from your employer to try and avoid you paying out of your own pocket.

Can I negotiate the terms of my settlement agreement?

This will depend on your individual circumstances and the terms you wish to negotiate. The team at Kalra Legal Group have great experience in this area as we have successfully negotiated settlement agreements for clients in a variety of situations. For further guidance of how we would handle certain scenarios, check our case studies.

We try to and reduce our client’s cost during the negotiation process by often requesting an increased legal contribution from the employer to cover our client’s costs. We also potentially offer a “No Win No Fee” agreement in these circumstances.

Disclaimer: The above information should not be taken as legal advice. For legal advice on employment law matters please contact a member of our team directly.

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Email: info@klglaw.co.uk

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