My Employer Has Offered Me a Settlement Agreement. What now?
If you've just been handed a settlement agreement, it can feel like a lot to take in; a legal document, a number, a deadline, and a meeting that probably felt more formal than usual.
Take a breath. You should be given a reasonable opportunity to consider the agreement you’ve been offered, and you must take independent legal advice so you understand the content and impact of the agreement. This article covers the basics of what a settlement agreement is, why you might have been offered one, and how to seek the legal advice you need.
What is a settlement agreement?
A settlement agreement is a legally binding agreement in which you agree to give up your right to bring certain claims against your employer, in exchange for agreed terms, usually a payment, and often other things like a reference or an agreed leaving date. It only becomes legally binding once you've had independent legal advice on it from a solicitor and once both parties have signed the agreement. The need to take independent legal advice on the agreement is a legal requirement, not a formality your employer is imposing on you.
It’s normal that your employer will contribute towards the cost of that advice and, if your agreement and situation is straightforward, this might mean that getting your agreement reviewed by a lawyer won’t cost you anything. However, the employer’s contribution is just that, a contribution, and if the circumstances and/or the agreement is complex, it may be that your legal fees are higher. If that is the case, it might be possible to negotiation a higher contribution to cover this.
Why you might have been offered a settlement agreement
There are many reasons why your employer might have offered you a settlement agreement. For example, redundancy, a restructure, a performance concern, a breakdown in the working relationship, or a dispute your employer would rather resolve than risk a tribunal claim. Being offered a settlement agreement isn’t necessarily bad news, and it isn't automatically an admission your employer's done anything wrong either. It's simply an offer, and you're entitled to have it properly explained before you decide anything.
Things to check before you sign
You have to review the settlement agreement with a solicitor for it to be binding, and they’ll go through with you the key points relevant to your agreement, but this will usually include checking:
What you're being offered, in full, so including notice pay, benefits, holiday pay, any bonus or commission owed, and how each element is being taxed.
What you're giving up in signing the agreement, specifically which claims you might have and their value, and whether there's anything you might want to keep the option to pursue.
Restrictive covenants; many agreements reconfirm or introduce restrictions on what you can do after you leave your employment (for example, working for a competitor, contacting clients or colleagues), and so it’s important you read and understand what you are agreeing to.
A reference and announcements, the wording of which will usually be agreed and included in the settlement agreement, giving you certainty as to what your employer will say, and won’t say, after you’ve left.
The timeline, so you’re clear on your last day and what happens between now and then, and when the payments will be paid to you.
Confidentiality and non-disparagement clauses, which are standard in most agreements so you know what you can/can’t say.
Timeframes and deadlines
Employers often give you a window in which you can accept the settlement agreement, and this should usually be around ten calendar days, reflecting ACAS guidance on what's considered reasonable. A short deadline is not a reason to sign before you've understood what you're agreeing to and, if you need more time to get advice, that can usually be agreed. That said, it’s best to reach out to a lawyer as soon as possible after you’ve been offered an agreement to get the ball rolling.
Is the amount I’ve been offered fair?
What's fair depends on things like your length of service, what you'd likely be entitled to if you didn't sign, and the strength of any underlying claim. That a decision that you can only make once you’ve received proper advice on the agreement and your particular circumstances. It’s often possible to negotiate, particularly if the initial offer hasn't accounted for everything you're actually owed.
At New Road we provide fast, clear, plain-English advice on settlement agreements, helping you understand your legal position and decide how to proceed. If you’ve been offered a settlement agreement by your employer, get in touch to discuss how we can help.
This post provides general information for individuals, not legal advice on your specific agreement. Settlement agreements vary enormously and you must take advice on your specific circumstances.
