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Settlement Agreements- What you need to know

Nobody would dispute that one of the sad repercussions of these difficult months is the fact that a large number of people may find themselves being made redundant or being offered a settlement agreement.

A settlement agreement is an agreement between you and your employer where you give up your right to bring any claim against the employer in exchange for a sum of compensation. In some settlement agreements the compensation sum can be quite high but in others the offer can be relatively modest.

A settlement agreement can cover situations where there is a potential redundancy, disciplinary, or where parties simply wish to no longer work together but the employer wants to comfort of knowing that the employee will never be able to bring a claim against them.

It is a requirement of any settlement agreement that you have to seek independent legal advice. Your employer will normally contribute towards the costs of this which is usually between £250.00 - £500.00 + VAT.  Speak to your solicitor straight away to see if there will be any additional charges on top of this.

Once you have received the settlement agreement, you need to speak to your solicitor and consider whether you want to accept the offer. You can always reject the offer or see if you can persuade your employer to increase the offer. It is best to discuss this with your legal adviser.

Generally the agreement will ask you to keep the existence and the terms of the agreement confidential. It is very common to see a clause requiring that you only discuss the agreement with your immediate family or legal adviser.

The first £30,000 payable as a compensatory payment under most settlement agreements will be tax free. Again, your solicitor will be able to discuss this with you as the agreement is likely to require a tax indemnity as part of the terms.

It is essential that you are comfortable in your understanding of all of the terms and the requirements under the agreement. There is a risk that a breach of any terms would result in you having to pay back the settlement monies.

If you have any questions, have received a settlement agreement or would like any advice on settlement agreements, please do not hesitate to contact our litigation team on or 01273 582271.


Posted in: Employment Law

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