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When settlement agreements are used

In situations where an employer is not happy with your performance or doesn’t think that you’re a good fit for the job anymore, you may be offered a settlement agreement.  This is a legal way for your employer to ask you to leave your job, usually by offering you a fixed amount of money and an agreed reference.

When employees may want to request a settlement agreement

Whilst employers are usually the ones to take the first step in offering a settlement agreement to an employee, it is possible to request the same from your employer.  You may want to do this if you feel that you are being managed out of the workplace.

For example, if you cannot meet unreasonable performance goals, if you have had one or more prolonged illnesses or if there are tensions within your workplace i.e. between you and your employer, which are unlikely to be resolved.

In each of these examples, depending on the specific circumstances, it may be possible to claim against your employer for constructive dismissal.  However, to avoid a claim, offering your employer a settlement agreement as a mutually beneficial way for you to leave the company could be faster – and more lucrative overall.

What happens if an employee asks for a settlement agreement?

If you are requesting a settlement agreement rather than just leaving for another job, it is likely that your employer will be aware that there are issues.  Therefore, in most cases they may be grateful for your offer of a settlement agreement and so most will come back to you with a settlement offer.  If you believe you may resign anyway, it is vital that you take legal advice before you propose a settlement agreement to your employer.

In some cases, your employer will want to think about your request for a settlement agreement.  However, if you’re also handing in your notice or are concerned that you may be dismissed regardless, then it is important to be aware that you only have 90 days from your last working day, to bring a claim of unfair dismissal against your employer.

For this reason, if you are resigning make sure that you include the date of your last day in your resignation letter and diarise to make a claim for unfair dismissal if your employer delays the settlement agreement decision process.

What do settlement agreements include?

A general settlement agreement will include the following:

  • Payments that you will receive e.g. a lump sum, several months’ salary and pension contributions
  • An agreed reference
  • The option to communicate the reason for you leaving to your colleagues

How an employer will benefit from a settlement agreement

In addition to being able to legally remove you from their company without facing an employment tribunal claim, your employer is also likely to benefit from certain clauses that are commonly included in a settlement agreement.  These include:

  • A confidentiality clause (to stop you from saying negative things about your employer both to colleagues and externally)
  • Restrictive covenants (for example, to prevent you from working for a competitor for a certain amount of time)

Employee settlement agreement benefits

There are many benefits of settlement agreements for employees, several of which would not apply if you were taking your employer to tribunal.  For example, unlike in an employment tribunal, you may be able to negotiate based on your contributions to the business, any sacrifices you have made for the good of the business and aspects of your personal circumstances that will be affected by leaving the business.

Similarly, whilst an employment tribunal claim may result in compensation, you could receive a similar amount using a settlement agreement.  In addition to compensation, settlement agreements may also enable you to keep benefits such as a mobile phone or company car for a set amount of time after leaving.

Finally, a significant benefit is that your employer will usually pay your legal costs, to ensure that you have sought your own unbiased legal advice in relation to a settlement agreement. This is a legal requirement and covers your employer against potential future claims.

Advice about whether a settlement agreement is right for you

An employment lawyer who specialises in settlement agreements will be able to advise you on the following:

  • Whether you have grounds for a claim against your employer
  • Whether a settlement agreement is the right course of action for you
  • Whether an employment tribunal would be too risky or expensive
  • Whether you are being offered a good deal in a settlement agreement
  • What to request if you are not being offered a good deal
  • Whether to sign a settlement agreement, or to opt for an employment tribunal instead

It’s really important to work with a solicitor that specialises in employment law and settlement agreements.

Speak to a specialist employment law solicitor

To speak to our settlement agreement specialists, call us at your local office:

Leicester call us on 0116 254 8871.

Hinckley call us on 01455 639 900.

Market Harborough call us on 01858 467 181.