Settlement Agreements for Employees
Have you been made redundant or been offered voluntary redundancy? Have you been through a performance procedure or unfairly dismissed? Have you raised a grievance or made a discrimination claim?
If you have, you may have been given a settlement agreement. If so, it is important that you take independent legal advice as soon as possible. Machins employment team is here to help.
Settlement Agreement Solicitors in Bedfordshire, Hertfordshire & Buckinghamshire
What is a settlement agreement?
A settlement agreement (previously called a compromise agreement) is a legally binding contract that is used to settle employment disputes. It will typically involve you agreeing not to bring any tribunal or court claims against your employer in exchange for an agreed sum of money and/or an agreed reference or benefits.
How can Machins Solicitors help me?
Under the settlement agreement you will be required to waive potentially valuable employment rights, it is only legally binding if you have taken independent legal advice on its terms and effect. This is why it is important that you are properly advised before you give up your rights.
The Employment team at Machins are approachable and experienced. We provide comprehensive employment advice at all levels of seniority. We can answer any questions you might have on the agreement: Are the settlement monies payable tax free? Am I entitled to a reference? We will ensure the agreement works for you and will help you negotiate the terms of the agreement so that you don’t miss out on what you are entitled to.
What will it cost me?
It is usual for your employer to make a contribution towards the employee’s legal costs as the agreement is for their benefit as well as yours. In straightforward cases there is no cost to you, the employer’s contribution will cover our fees in full. We can advise you if there are grounds to negotiate the settlement monies or the terms of the agreement and can agree with you any additional fee to do this.
How to get in touch?
We have offices in Luton and Berkhamsted (under our name of Sumner & Tabor). Our team provide employment law advice on settlement agreements in Luton, Dunstable, Aylesbury, Bedford, Chesham, Hemel Hempstead, London, Milton Keynes, St Albans, Stevenage, Tring, Watford and throughout Hertfordshire, Bedfordshire and Buckinghamshire. We are available to meet face-to-face or by telephone or Skype. Whatever works best for you.
If you have received a settlement agreement and would like to have a free initial conversation over the phone as to how to proceed our team are on hand to help. Please contact us by telephone on 01582 514000 or 01442 872311 or by email on [email protected]
What documents do you need to see?
We can advise you what you need to provide, but as a starting point: the settlement agreement and, a copy of your employment contract (if you have one). To set you up as a client we are also obliged to check your identity and address so you should provide us with your original passport or photo card driving licence and a recent utility bill.
What terms are usually contained in the settlement agreement?
The typical terms include:
- That the employer will pay the salary and accrued benefits, including untaken holiday, up to the date of termination of employment.
- Payment in lieu of employee’s notice period if the employee is not required to work their notice. Advice will be required on whether this payment should be subject to tax. The normal rule is that any payment that arises from the contract of employment is taxable.
- Payment of compensation for loss of employment. This can be paid tax free up to a maximum of £30,000.00.
- The employer usually requires the employee to provide an indemnity in respect of any tax liabilities for payments made under the agreement.
- The employee may be asked to enter into restrictive covenants relating to contacting clients, suppliers or employees of the employer and against disclosure of confidential information belonging to the employer.
- The employee may be asked to warrant (confirm) that they do not have an existing job offer and that they have not committed any act of gross misconduct.
- The employer will sometimes agree to provide a reference for the employee, the terms of which are usually agreed in advance. However, it is common place nowadays for references to be limited to dates of employment and job titles.
How much of my compensation will be tax free?
Under an exemption granted by HMRC payments of up to £30,000.00 (in total) to the employee under a settlement agreement can be paid free of tax. However how the payments made under a settlement agreement are treated for tax purposes varies according to the type of payment:
- Salary and benefits to the date of termination including payment in lieu of holiday are subject to tax and national insurance deductions in the normal way and should be paid net of these.
- Payments in lieu of Notice are taxable like other contractual payments where provision is made for them in the employee's contract or employee handbook.
- Payment for loss of office or employment can be paid gross and will count towards the £30,000 exemption.
- Statutory and contractual redundancy payments can be paid gross and will count towards the £30,000 exemption.
If the settlement agreement includes compensation that exceeds the £30,000 exemption the employer must deduct tax at the OT tax code rate which may mean making deductions at different rates from 20% to 50% depending on the extent to which the payment exceeds £30,000.
You should disclose the payments received under the settlement agreement to the Inland Revenue and you may have to complete a tax return. You should keep a copy of the settlement agreement for a minimum of 6 years as the Inland Revenue may want to see it to check the tax status of the payments you receive.
What if the employee believes they have a claim against the employers?
If the employee believes they may have a claim against the employer, for example for unfair dismissal or discrimination, the potential value of the claim needs to be assessed and advice provided on whether the sum offered in the Settlement Agreement is a fair settlement sum. If necessary we can negotiate with the employer to increase the amount offered. We may have to charge you for the time spent in doing this.
Ms G came to us for advice on a settlement agreement that she had been offered by her employer. Her employer was seeking to terminate her employment as they did not want to accept her request to work part-time on her return from maternity leave. We advised her on her potential claims for unfair dismissal and sex discrimination and as a result of this advice we were able to negotiate a 25% increase in her severance package.
Mr S had been offered a settlement agreement as part of a redundancy consultation. We advised him that his redundancy was unfair and negotiated with the employer to increase the redundancy package offered to him.
Mrs H was given the option of taking a settlement agreement or to go through a performance management process. She had been diagnosed as suffering from a disability. We advised her on pursuing a grievance in relation to a potential discrimination claim and negotiated a substantive increase to the financial settlement offered and an agreed reference.
Don’t just take our word for it. Many of our clients come recommended to us:
'Very easy to make contact'
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'Great service at very good cost'
'Had a very positive experience during what was naturally an upsetting time'
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