settlement agreements

If you have been offered a settlement agreement by your employer then we can help. We appreciate that this can be a very difficult and stressful time for you so our expert Employment lawyers will provide you with clear and practical advice – to ensure that you receive the best settlement and that you understand the process and costs involved.

NB this page is for employees. If you’re an employer looking for assistance with settlement agreements, visit our Settlement Agreements for Employers page.

What is a Settlement Agreement?

A Settlement Agreement (formerly known as a compromise agreement) is a legally binding document that concludes claims or potential claims that you have, provided that certain conditions are satisfied. You will usually receive a lump sum termination or severance payment that is in effect compensation for your employment being terminated. In return you agree not to bring legal proceedings against your employer.

What can be included in a Settlement Agreement?

A Settlement Agreement can include:

• Payment in lieu of notice and accrued holiday pay
• Payment of compensation
• Continuation of benefits
• An agreed reference
• Provision of outplacement support
• Confidentiality
• Return of company property
• Restrictive covenants
• Contribution towards legal costs

A standard confidentiality (non-disclosure) clause  in a Settlement Agreement will usually state that you agree to keep confidential the existence or terms of the Agreement and will not disclose those terms to any person except your advisers, relevant tax authorities or as required by law. Confidentiality issues will normally extend to trade secrets and confidential information. We are often able to negotiate with the employer that they should be subject to reciprocal obligations.

What is the tax position?

The starting point is that all payments relating to employment are taxable and subject to National Insurance Contributions as employment income under Section 6 of the Income Tax (Earnings and Pensions) Act 2003. Typical examples of fully taxable employment income are:

• Salary payments
• Contractual bonuses and commission payments
• Holiday pay
• Payments in lieu of notice
• Consideration for restrictive covenants

However, compensation for unfair dismissal, discrimination, redundancy or other statutory claims are viewed as damages. Genuine compensatory payments paid on termination benefit from an exemption that the first £30,000 of such a payment is not chargeable to Income Tax or National Insurance. Income Tax will be payable on the balance (if any) over £30,000.

Who pays for my legal advice?

You must obtain legal advice before signing a settlement agreement. There is no legal requirement for the employer to pay your legal fees in taking advice on a Settlement Agreement and therefore you are primarily liable for all fees. However, in practice employers will normally contribute towards some or all of the legal costs. It is often possible for us to negotiate an increase in the contribution so that there is no cost to you at all.

We will always ensure you authorise additional costs before they are incurred and keep you informed if costs are likely to exceed the estimate we have given.

More Information

Please see our  Pocket Guide on Settlement Agreements for more details.

To make an appointment to speak to one of our Employment Solicitors call Paula Stuart on 01908 689345 or Stuart Snelson on 01908 689318.

What our clients say:

“I would absolutely recommend Geoffrey Leaver Solicitors to anyone seeking Employment Law advice, their professionalism is excellent and they are very efficient and appreciated all their advice.” AM, Settlement Agreement.

“Paula Stuart provided excellent service form both a legal and advisory perspective. With the advice she provided, I was able to obtain a better settlement outcome without complex negotiations. She ensured I understood every clause in the Settlement Agreement. I will have no hesitation in recommending Geoffrey Leaver Solicitors to others.” Mrs B, Settlement Agreement

For more information about how we can help, you can read testimonials from our employment clients