Do you need advice before signing a Settlement Agreement?

Being offered a settlement agreement can be unsettling, especially if you did not expect to leave your job or you are in a dispute with your employer. Before you sign, it is important to understand what you are agreeing to and whether the offer is fair. This guide explains why advice matters and what to think about before you accept.

What is a settlement agreement?

A settlement agreement is a legally binding contract in which you usually agree to give up your right to bring claims against your employer, such as unfair dismissal or discrimination claims, in return for a payment and other agreed terms. Our guide to settlement agreements explains how they work in more detail.

Why you need independent legal advice

For a settlement agreement to be valid, you must receive advice from a relevant independent adviser, usually a solicitor, on its terms and effect, and in particular on how it affects your ability to bring a claim in the employment tribunal. The adviser must be named in the agreement.

Good advice should cover both your statutory rights and your rights under your employment contract. Both can make a big difference to how much you receive and whether the offer reflects the strength of any claim you are giving up. Our settlement agreement solicitors can explain the terms and, where appropriate, negotiate with your employer on your behalf.

Who pays for the advice?

Employers usually make a contribution towards your legal fees, because the agreement is not valid without independent advice. The amount varies, and it often covers the cost of straightforward advice. Our article on who pays the legal costs of a settlement agreement explains more.

What to check before you sign

• Take your time. The Acas Code of Practice on settlement agreements recommends that employees are given at least 10 calendar days to consider the terms and take advice.
• Check the payments. Make sure notice pay, holiday pay and any bonus or commission due to you are dealt with. Genuine compensation for loss of employment is often tax free up to £30,000, but contractual payments and notice pay are taxed. Our article on when a termination payment is fully taxable explains the rules.
• Check the other terms. Look at what the agreement says about references, confidentiality, any restrictive covenants and how your departure will be announced.
• Consider negotiating. The first offer is not always the final one. Our tips on negotiating a severance package may help.

Have support around you

This can be a stressful time, and it helps to have support. If you are a trade union member, your union representative may be able to help. Even having a sympathetic colleague, friend or family member to talk things through with can make a real difference.

Protect your financial security

Think about what you can do now to protect your finances, and those of your family, in the months ahead. For example, you could:

• speak to an independent financial adviser about your options, including what happens to your pension
• talk to your mortgage lender early if you are worried about payments
• register with recruitment agencies in your sector
• update your CV and LinkedIn profile

Plan your next step

A settlement agreement can also be a chance to think about what you want next, whether that is a different career, a better work-life balance or a new challenge. Now is a good time to get in touch with contacts and friends who may know of opportunities or have useful suggestions.

If you have been offered a settlement agreement, book a free 30-minute consultation or call Complete Employment Solicitors on 0141 471 9166 to talk it through.