During the course of employment, there are various reasons why the relationship between employee and employer could reach a point where it is no longer viable, but dismissal or redundancy are not appropriate.
If it is mutually agreed that it can no longer continue, the best option might be to consider entering into a settlement agreement.
A settlement agreement is a legally binding document used to bring an employee’s contract of employment to an end. The objectives to be achieved from a settlement agreement can vary and it is important to ensure key objectives are negotiated and that a fair compensation is provided.
The purpose of the settlement agreement is to:
- Provide the employee with a sum of money in return for not pursuing employment claims against the employer (but there are limited claims that can still be pursued)
- Agree the end date and any consequential arrangements for handover of work
The benefit of a settlement agreement is the ability to negotiate terms. To some extent, this helps to create a clean and mutual employment termination. In order for a settlement agreement to be legally binding, a legal advisor must advise the employee as to the settlement terms and the impact they have. This ensures the employee fully understands the settlement agreement and has the opportunity to negotiate, through an independent legal advisor. It is common practice that the employer contributes towards these legal costs.
What should you consider before entering into a settlement agreement?
- The settlement sum and other benefits – an employee should consider the loss to be incurred by losing their job, such as the ability to find another job and the time this may take. In addition, consideration of any bonus and holiday accrual to be lost. These losses should be reflected to ensure a fair compensation is given.
- Tax – it might be necessary to seek tax advice on the settlement sum received.
- Termination date – an employee should consider whether working their notice period, getting paid for the notice or taking garden leave would be suitable to their circumstances. There are benefits and implications on selecting a relevant termination date and a legal advisor can provide further guidance on this.
- Warranties – these are essentially legal promises made by the employee to the employer, confirming they are not aware of any claim or breaches that could result in a breach of the settlement agreement.
- Reaffirmation – if there is a long period between the date of signing the settlement agreement and employment termination date, it is common practice for the employer to ask the employee to confirm that there are no change in circumstances by signing a reaffirmation.
If you are an employee who has received a settlement agreement or an employer who is considering offering one, contact Woodfines Solicitors to discuss points of negotiation and any potential issues that may arise.
By Melanya Ponraj, Trainee Solicitor at Woodlfines Solicitors
Contact employmentsupport@woodfines.co.uk or find out more on their website.
