Settlement Agreement FAQs
Navigating employment termination can be challenging. Our comprehensive Settlement Agreement FAQs are designed to provide clear guidance and straightforward answers to your most pressing questions. Whether you need clarity on compensation, protected conversations, or legal advice requirements, our FAQs aim to demystify the process.
At Askews Legal, we empower you with essential information to confidently approach and negotiate your settlement terms, ensuring your interests are protected and your departure is managed smoothly and effectively.
For personalised advice, our expert solicitors are always ready to assist you further.
What is a Settlement Agreement?
A Settlement agreement (formerly a Compromise Agreement) is a document used by an employer to compromise or settle any potential claims an employee may bring against it arising out of their employment or the termination of their employment. By signing the agreement, the employee is giving up their right to take their employer to an employment tribunal or court, usually in return for compensation.
When are settlement agreements used?
Settlements can be used in lots of different situations to bring the employment relationship to an end. The most common situations include redundancies, relationship breakdowns, performance management or where there is evidence of misconduct.
What is a protected conversation?
A protected conversation is a confidential discussion that enables an employee and employer to have a frank discussion about bringing the employment relationship to an end and resolving any dispute on agreed terms. Provided there is no ‘improper behaviour’, that discussion will not be admissible in an employment tribunal. During a protected conversation, an employer will usually offer an employee a settlement agreement.
How much compensation am I entitled to?
Your financial entitlements will depend on the circumstances in which your employment is being brought to an end. As a minimum, a settlement agreement should deal with your entitlement to salary and accrued holiday up until the termination date, as well as your entitlement to notice and any benefits. It will need to deal with any entitlement to a bonus, commission or shares. It will need to deal with any entitlement to a redundancy payment. In most circumstances, there will then be an entitlement to compensation, in excess of the employee’s statutory entitlements.
Can I negotiate more money?
It may be possible to negotiate improved terms, either yourself, or via your solicitor. This will usually incur additional fees from your solicitor and there is no guarantee of a positive outcome. However, in circumstances where you are receiving very little benefit for signing the agreement and giving up your rights, and you are in a strong position, you may be successful in negotiating additional compensation.
What is an ‘ex-gratia’ payment?
An ex-gratia payment is the same as a compensation payment, termination payment or severance payment. The terms are interchangeable but usually refer to a non-contractual or ‘voluntary’ payment.
Do I have to work my notice period?
Depending on the circumstances in which you are leaving the business, your employer may require you to work your notice period, for example to facilitate a handover. They may also place you on garden leave or pay you in lieu of your notice period. Garden leave is where you remain employed during your notice period but are not usually required to attend the workplace. Payment In lieu of notice is where your employer makes an advance payment of your notice pay to you to bring your employment to an end immediately.
How much notice should my employer give?
Your notice period should be identified in your contract of employment. The minimum notice period your employer can give you is 1 weeks’ notice for each whole years’ service up to a maximum of 12 weeks. For the purposes of a settlement agreement, the notice period should be based on the notice the employer has to give, rather than the notice the employee has to give.
Does my employer have to give me a reference?
There is no obligation on an employer to provide a reference in most circumstances, however it is common for an employer to have a custom and practice of providing employment references for former employees. A settlement agreement is a good opportunity for an employee to negotiate the terms of a reference. Ideally, it should include job title, dates of employment and some factual statements regarding day-to-day responsibilities.
Do I need to have independent legal advice?
A Settlement Agreement is only legally binding if the employee receives advice on the terms and effect of the agreement by an independent qualified advisor, such as a solicitor, who must be identified in the agreement.
Does my employer have to pay my legal fees?
It is not obligatory for your employer to contribute towards the legal costs of you obtaining independent legal advice, although it would be extremely rare for them not to. A typical contribution for a straightforward settlement agreement is between £350-£500 + VAT. That fee is for receiving advice on the ‘terms and effect’ of the agreement. It would not cover negotiating improved terms with your employer.
Do I have to sign the agreement?
You do not have to sign the agreement; it is entirely your choice. However, a settlement agreement will usually offer you more favourable terms than leaving the business through an alternative route, such as enhanced compensation and a reference.
Am I allowed to tell people about my settlement agreement?
It is common for a settlement agreement to include confidentiality provisions prohibiting disclosure of the existence or terms of the agreement. It is usual for there to be some permitted exceptions, such as disclosure to spouses/immediate family, professional advisers, HMRC, or as required by law.
Can I stop my employer from making negative remarks about me?
It is common for a settlement agreement to contain ‘non-disparagement’ provisions to ensure that you do not make any derogatory or disparaging remarks about the business or its officers or employees. You should ensure that this clause is reciprocal so that you are afforded the same protections and peace of mind, by ensuring your employer cannot make negative remarks about you.
What is a reaffirmation agreement?
A settlement agreement may sometimes contain a reaffirmation requirement. This is where there is a significant gap of time between the employee signing the original settlement agreement and the employment relationship actually coming to an end. It requires the employee to confirm the terms of the original agreement are still true including the warranties.
