Settlement Agreement Process

Sometimes with a difficult employee it may be easier and less stressful for an employer to decide to use a settlement agreement to end the employment relationship. Using a settlement agreement avoids the need to go through weeks and months of managing poor performance for example via a lengthy capability process or trying to manage ongoing unacceptable conduct. A settlement agreement provides a swift end to the employment relationship and offers a "clean break" where both parties can move on. A settlement agreement also avoids the risk of a costly employment tribunal.

What Does A Settlement Agreement Include?

A settlement agreement sets out the terms by which both parties (employer and employee) agree to end the employment relationship including the date for an agreed compensation sum. The sum must take into account remuneration, notice period, untaken annual leave and length of service with certain elements subject to national insurance and tax. A tax free compensation sum of up to a maximum of £30,000 can be paid. Employers need to be quite clear on what elements have to taxed which includes pay in lieu of (PILON) to ensure there are no repercussions with HMRC at a later date. Employers should seek the advice of an accountant or HMRC if unsure. The settlement sum elements should be clearly listed and where taxable the figures clearly shown. The settlement agreement should also include the offer of a reference which when given eshould be quite basic - start date, end date, job title. It should never be subjective. An example of the reference can be provided with the settlement agreement or the proposed details outlined. Once signed by all parties the employee loses the opportunity to make an employment tribunal claim for breach of contract, unfair dismissal and/or discrimination. Settlement agreements are legally binding.

How to Make a Settlement Offer

A meeting should be held ideally with the settlement agreement document having been prepared beforehand andthe employer having decided on what they consider to be a fair settlement sum. Often such meetings are "off the cuff" with no advance warning to the employee that the meeting will take place. It can be part of a protected conversation. There is no statutory right to be accompanied by a trade union or work colleague. The need for confidentiality regarding the entire process should be stressed and that the meeting is "without prejudice". Without prejudice means the employee may not disclose any of the details discussed in the meeting or the documentation in an employment tribunal if the settlement agreement process fails.

The employer should discuss with the employee the reasons of why the employment relationship is not working and how they have arrived at the proposed settlement figure.The employer then invites the employee to visit a legal advisor to have the settelement agreement checked over before the employee signs and returns the document. It is custom and practice that the employer offers to pay a contribution for the employee to seek legal advice usually £500 to £1000 + VAT. This is paid when the legal advisor submits the invoice to the employer. With a well written settlement agreement the provision of legal advice is a formality with rarely any suggested changes being made. On receipt of the signed settlement agreement the employer then makes payment of the agreed sum with the agreed timescale to the employee.

Settlement Agreement - Employers

We offer a settlement agreement supported by advice for £500.

Attendance at meetings either to provide support or chair a meeting (either on site or remotely) is available at extra cost.

Settlement Agreement - Employees

We act as a legal advisor to review a settlement agreement free of charge; your employer pays our fee.

For a free consultation please call 07762 771290.

Contact Us

Registered Office: Workspace House, 28-29 Maxwell Street, Peterborough, PE2 7JE

Tel: 07762 771290

Email: info@sjbealehrconsult.co.uk

SJ Beale HR Consult Ltd registered in England and Wales; registered company no. 6211388

Hours Mon-Fri 8am to 6pm

Terms and conditions | Cookie & Privacy Policy