Settlement Agreement FAQ's

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Danielle Wright

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I have been offered a settlement agreement – should I accept it?

This will depend entirely on your situation. If you are happy with the amount you are being offered, then you may want to accept it. If the offer is not to your satisfaction though, then you may want to reject or try and negotiate the offer. Other factors that you will need to consider include how long it may take you to find new employment and what the alternative is to accepting the offer. For example, if you are facing a potential disciplinary hearing that may result in your dismissal, you might be more inclined to accept the offer than risk being dismissed.

What is a reasonable settlement agreement?

Again, this is dependent on your specific situation. As a minimum you are legally entitled to your pay up to the termination date, notice pay and payment for any holidays you have accrued but not taken as at the termination date. You are then looking for a settlement payment to compensate you for your employment ending and for giving up your rights to pursue any claims that you may have. This amount will depend on the reason behind the Settlement Agreement. If it is being offered as an incentive to volunteer for redundancy then the offer may be more generous than if it was being offered as an alternative to disciplinary action. The amount will also depend on your salary, and ultimately how much your employer wants you to leave.

How do I negotiate a settlement agreement?

If you want to try and increase the amount of money you receive, the easiest way is to make a counter-offer to your employer. Ideally any communication with your employer should be on a “without prejudice” basis. This means that if you are unable to reach an agreement and the situation goes further, any offers you put forward during these negotiations cannot be referred to in any Tribunal proceedings. If you do try and negotiate the amount, you need to be mindful that our employer may withdraw the offer if they are unhappy with the level of the offer.

What does a settlement agreement typically include?

Essentially a Settlement Agreement is that you agree to end your employment for a sum of money and not to make any claims against your employer. There are however, usually some additional clauses such as keeping the agreement and any dispute leading to it confidential, not saying anything negative about each other, perhaps an agreed reference your employer will provide if asked by a prospective employer.

Can I refuse a settlement agreement?

Yes, there is no obligation on you to agree to an offer of a Settlement Agreement.

Why do employers use settlement agreements?

Settlement Agreements are a bit of an insurance policy for employers as they ensure that you cannot make any claims against them for usually used in 1 of 3 general scenarios:

  1. Your employer has done something wrong and wants to pay their way out of the situation
  2. It is clear that the employment relationship is coming to an end and rather than go through the formal processes needed to do this, they pay to skip the formal process
  3. The employer has done everything properly, but want the additional protection that a Settlement Agreement gives them

What is the difference between a settlement agreement and a compromise agreement?

There is no difference. In July 2013 a number of changes came into force in employment law, some of which saw Settlement Agreements replace Compromise Agreements.

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