Settlement Agreements formerly known as compromise agreements are legally binding documents that set out all of the terms on which an employee/employer relationship will end. Upon termination of employment this type of arrangement can be used by an employer to ensure that the employee will not bring any legal claims against them in the future. In return for giving up their right to bring a claim to the Employment Tribunal, the employee receives an agreed amount of compensation over and above the amount required by law. These are important issues for most businesses and in the relevant circumstances employers are well advised to obtain qualified legal advice from a specialist compromise agreement solicitor at the first opportunity.
The precise content of the settlement agreement will depend on the circumstances surrounding the employment and the termination. Each arrangement is tailored to particular circumstances and it is essential from an employers perspective to obtain qualified legal advice on settlement agreements from a compromise agreement solicitor. For the most part these arrangements cover the same key matters including:
Validity from the perspective of an employer is paramount. Once the money has been paid, the employer needs to know that they are safe from potential action in the Employment Tribunal. Qualified legal advice from a settlement agreement solicitor is essential for both the employer and the empoyee. A settlement agreement is valid and enforceable only if it:
Entering into a settlement agreement means that neither party will have to wait months for a costly and stressful Employment Tribunal claim to resolve the issues. With this type of arrangement both parties know with certainty the specific amount of compensation to be paid and received at an early stage.
An employee is never required to sign a settlement agreement. If an employee chooses not to sign it, then no agreement exists with regard to the termination of employment. Without signature the employee remains free to pursue a legal claim against the employer in an Employment Tribunal.
Normally the payment is made within one to two weeks after all of the parties have signed the agreement. The exact date of payment will be noted within the agreement.
There is no charge to income tax for payments up to £30,000. However, any amount of compensation in excess of £30,000 will be taxed in the hands of the employee in the normal way, as though it was earned income.
The law requires an employee to obtain legal advice before signing a settlement agreement. This is because the employee will be giving up certain legal rights in exchange for money and the deal must be seen to be fair to all parties.
In most cases the employer covers not only their own legal charges but also the expenses that the employee incurs while obtaining legal advice.