Is your settlement agreement a good deal?

Although the employment market has been gradually picking up, we are still seeing a wealth of settlement agreements (previously known as ‘compromise agreements’) being put on the table. These documents offer employees a fairly stark choice – you either accept and leave your job with a package that may not be that advantageous or you refuse the settlement agreement and risk getting even less via a redundancy or disciplinary process. Before you make such an important decision it’s important to understand what the settlement agreement is and how signing it will affect you.

When is a settlement agreement likely to be on the table?
Normally these are part of the process of compulsory or voluntary redundancy or where an employee is facing accusations of misconduct or poor performance. They are only usually used if an employer is planning to offer more than the statutory minimum.

What happens if you sign one?
You will give up certain rights, such as bringing a claim against your former employer, and you’ll receive an amount of money in return. Normally the document will also ‘gag’ you against badmouthing an employer.

Can you go back once the agreement is signed?
No, if you sign a settlement agreement then the terms are permanent, which is why you’re legally required to take advice before you do. You should find a good employment law solicitor who can advise you on both the terms and the effects of the settlement agreement. The employer will normally cover these fees.

What is a Pre-Termination Negotiation? 
The Pre-Termination Negotiation is an honest discussion of the termination of an employment contract but it is protected, which means that nothing that is said during the discussions can be used in a subsequent unfair dismissal claim. However, there are certain situations in which what is said is not protected, for example, automatically unfair dismissal claims, such as whistle blowing or in discrimination claims.

How do you know if you’re getting a good deal?
This will be very person specific. One of the main factors to consider is whether this amount offered will support you until you get a new job.

Can you negotiate?
Yes, the solicitor you work with should be able to tell you whether you’re getting a fair deal and to highlight areas where the package – including benefits as well as cash - could be more tax efficient (the first £30,000 is usually non taxable). You could consider asking for other elements, as well as just cash, such as training paid for by the employer to secure another job, keeping a company car or leaving without working your notice period – remember, if you don’t ask, you don’t get.

What if I don’t want to sign?
Then don’t sign. If you want to start an unfair dismissal claim after you’ve had settlement agreement discussions then do it quickly – the normal time limit is three months less one day so you don’t have that long.