At TEN Legal Solicitors, we deal with compromise agreements (now known as settlement agreements) almost weekly.
We provide fast, efficient independent to employees, which in the vast majority of cases is free to you as employee, as the employer pays our fees for advising you on the agreement.
Most people are still referring to these agreements as compromise agreements but they are now termed settlement agreements by the Government since earlier this year. In practical terms there is little difference between the terminology.
The underlying reasons for being offered a settlement agreement and our approach
Compromise agreements are offered for a variety of different reasons. A common approach by employers is related to enhanced redundancy, but equally, there may be an underlying dispute such as a grievance, a disciplinary issue, allegations of some kind of discrimination or long term sickness absence.
Settlement agreement – why is a legal advisor compulsory?
For a settlement agreement to be binding, it is a legal requirement that the employee must have been independently legally advised. As part of this process the settlement agreement solicitor should explore with you and consider:-
- your statutory rights– such as whether you may qualify to make an unfair dismissal claim.
- your employment contract– what are your contractual rights to notice or other employment benefits such as notice period, commission, a bonus, health cover and holidays?
- the possibility of an Employment Tribunal claim– and what type.
- the potential for you to secure suitable alternative employment after you leave– how long might it take for you to get another job and what is the job market like for your type of work and your level of experience?
- the financial package offered in the employment settlement agreement– in particular, whether you are entitled to the ex gratia amount tax free, whether your employer has sought to include restrictive covenants in the agreement, do you need to negotiate a helpful reference and whether there are realistic prospects of negotiating a better financial offer.
Some employees just sign off others hold out and negotiate
Sometimes, employees simply want fast advice and to sign off on the agreement, others want to know about the prospects of negotiating a more favourable financial package.
Whichever is the case, our specialist employment lawyer, Ben Jones, will guide and assist, whether the underlying situation is redundancy, possible constructive unfair dismissal or otherwise.
Remember also that you do not have to sign the agreement, you can refuse or try to negotiate. Before refusing you should however carefully consider the alternatives and possible outcomes of doing so.
Is there a standard form of settlement agreement?
These agreements are generally fairly standardised documents in terms of the clauses incorporated. This is because such agreements are created by statute and must include a number of clauses whereby if you decide to sign, you will contract out (waive) your potential rights to make claims for the majority of matters arising out of the employment relationship.
How much money for signing Settlement Agreement?
One aspect employee clients regularly ask about is the amount of money offered. Is it standard? The answer is no but there is something of a “going rate” which is between the equivalent of 1-3 months salary gross, paid ex gratia, in addition to contractual entitlements.
There are technical and practical reasons why employers are unlikely to offer more than this in most cases, regardless of the underlying issues, whether redundancy, long term sickness absence or other dispute or issue.
This is because employers tend to look at the likely costs of defending employment tribunal proceedings in circumstances where legal costs they incur are unlikely to be recovered from the employee, whether the employee wins at tribunal or not.
Employers often take the view that if they offer the equivalent of an additional few months salary, ex gratia, this is better than incurring some legal costs. However, they will also often believe that there is no incentive to offer more than this as they can always renew the compromise agreement offer once proceedings are underway. They will also know that for many tribunal claims, (with the exception of discrimination claims, which are not loss related) the employee needs to show a loss and vigorous attempts to get work. If the employee gets another job quickly, there will be no loss or very little loss, and in that circumstance the employee would have been better off accepting the settlement offer. This explains why there is something of a “going rate”.
We will also advise you on the tax implications of the agreement, so you can be assured of a very rapid service and effective negotiation.
Without Prejudice Settlement Agreement discussions and offer
The words “without prejudice” when used during written or verbal discussions with a view to settling a dispute ensure that those discussions do not prejudice a party making an offer or a possible concession should the case proceed.
For example, an employer offering a compromise agreement would not want an employment tribunal to know it had made an offer to an employee if the employee rejects the offer, as that might imply an acceptance of legal liability.
Consequently, ensuring that any negotiations are on a without prejudice basis is a useful way of negotiating behind the scenes and the reason why compromise agreements are marked “Without Prejudice & Subject to Contract”.
Need assistance or advice? Get in touch with our Employment Law team.