Settlement Agreements – Advice for Employees

Particularly in light of the current economic outlook, caused by the global pandemic, many employees may find they are in receipt of a Settlement Agreement from their Employers. While we would hope the government’s proposed new furlough measures may assist to save jobs it is likely that some will still be lost.

This briefing aims to provide a simple summary of Settlement Agreements for employees.

What is a Settlement Agreement?

A Settlement Agreement is a formal agreement between an employer and an employee dealing with the settlement of claims that the employee may have arising from their employment or its termination. Settlement Agreements are used to resolve employment disputes or end the employment relationships on agreed terms. They are an effective way of preventing or resolving employment disputes and provide certainty to both parties. Once signed, an employee will be prevented from bringing employment claims. Settlement Agreements can be used in a variety of employment situations including redundancy, disciplinary matters, sickness or incapacity or in resolution of a grievance raised by an employee.

Should you sign a Settlement Agreement?

Whether you should accept an offer depends on the offer made, the strength and value of any claims you may have against your employer, the length of time you that have been employed for and a number of other factors, which will be personal to your own circumstances. If you are offered a Settlement Agreement, you should carefully consider what you want to achieve by signing it.

Is Tax Payable?

Whether tax is payable depends on the nature of the payments made under the settlement agreement. Any part of the payment which is made up of wages, holiday pay, bonuses, commission, contractual payments and payments in lieu of notice tends to be subject to usual deductions for income tax and national insurance. Payments made in compensation for loss of employment tend not to be subject to tax or employees’ National Insurance contributions subject to a cap of £30,000.

How can BBM Solicitors help?

If you have received a settlement agreement from your employer we are able to advice you on its terms by telephone and email. We can comply with all social distancing measures. We will advise you the effect of the agreement and if you agreed its terms, we can then send a legal adviser certificate to your employer. If you do not agree, we can help you to explore other options. Often, unless there are matters to be negotiated, we are able to restrict our charge to what your employer agrees to contribute towards your legal fees, subject to that contribution being reasonable. We will then invoice your employer directly when the agreement is signed.

If you sign the Settlement Agreement, you will not be able to bring a claim in the employment tribunal or courts. It is therefore important that you get advice so you can make an informed decision.

If you want to discuss further please contact our Wick Office on 01955 604188 or Edinburgh office on 0131 5263280.