Friday, May 10th, 2019
When leaving your employment, your employer may ask you to enter into a settlement agreement (formerly known as compromise agreement). We set out below some of the common terms found in a settlement agreement.
Your settlement agreement should explicitly state when your employment ends. You will usually be entitled to receive your normal salary and benefits up to the termination date.
By signing a settlement agreement, you are agreeing to waive all and any claims you have or may have against your employer. This is usually the main purpose of the settlement agreement and therefore something your employer is unlikely to agree to negotiate.
By signing a settlement agreement, you are agreeing to keep confidential the circumstances surrounding the termination of your employment as well as the terms of the settlement agreement itself. Most settlement agreement also require you to warrant that you will keep confidential any confidential information you were privy to in the course of your employment.
As compensation for terminating your employment, your employer will normally pay you:
- compensation for loss of office. This is usually calculated based on the statutory redundancy amount you are due (which you can calculate here: https://www.gov.uk/calculate-your-redundancy-pay) although some employers may pay more than the statutory amount;
- payment in lieu of notice (if your termination date falls before the end of your notice period);
- payment for accrued but unused holiday days;
- a contribution towards your legal fees (see Legal Advice below).
The compensation for loss of office element will normally be tax-free (up to £30,000).
You employer may require you to enter into post-termination restrictions (known as restrictive covenants), whereby you agree not to do certain things for a specified amount of time after your termination date. These normally include agreeing not to poach customers, suppliers or other employees from your employer.
Pursuant to the Employment Rights Act 1996 (section 203(3)), it is a requirement that you receive independent legal advice on your settlement agreement, failing which the agreement is invalid. We would be happy to advise you on the terms of your settlement agreement either in person or over the phone. If you would like to arrange a meeting, please contact a member of our Employment Team on 0207 228 0017 or e-mail firstname.lastname@example.org
This article does not constitute legal or other professional advice or a professional opinion of any kind nor does it give rise to a solicitor/client relationship. If you require specific legal advice on the matters contemplated by this article, please contact a member of our Employment team on 0207 228 0017.