What is a settlement agreement?

A settlement agreement is a formal agreement, usually made between an employer and employee. They are most often used as an alternative to the employee bringing a claim in an Employment Tribunal.

You may see reference to a ‘compromise agreement,’ which is an older term for the same type of agreement.

Are they legally binding?

Yes- on both sides. Before an employee signs a settlement agreement, they must obtain independent legal advice, and the employer will usually pay at least a contribution towards the cost of the advice (but will more often cover the entire sum- this is certainly something that we would seek for a client.)

How much are settlement agreements worth?

Each agreement is different- the amount will be reached after a process of negotiation and discussion. Several factors are usually taken into account, including your level of pay, length of service and your age.

There is no hard and fast rule, but it is vital to take legal advice in order that the amount offered properly reflects your situation.

Will I pay tax on the settlement figure?

The first £30,000 of any settlement is usually tax free, because it is not classed as ‘earnings.’ This differs if it is a payment in lieu of notice (PILON) and a solicitor will advise you as to the implications if this is the case.

An important point to bear in mind is that if a settlement agreement includes share options, the position can be different. Legal advice is especially important in these cases.

Can I still bring an Employment Tribunal claim if I sign a settlement agreement?

No – if you sign a settlement agreement, you waive your right to submit any such claims. If negotiations take place but you don’t actually sign, an Employment Tribunal claim may still be open to you.

We are vastly experienced in dealing with settlement agreements, and understand how fundamental it is to receive swift legal advice tailored to your exact circumstances. We are usually able to offer a same day appointment service, so if you require advice as to a settlement agreement, call Yunus Lunat on 0113 284 5023 without delay.

Watch Our Settlement Agreement Video

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