What is a Reasonable Settlement Agreement?

A settlement agreement, previously known as a compromise agreement, is a legally binding document between you and your former employer that allows you to leave employment with financial compensation. This is often a last resort as it waives your employment rights, preventing you from raising further action against your employer.

If your employer has discussed the possibility of a settlement agreement, don’t hesitate to contact us. At Cavendish Employment Law, we’re specialists in employment law with a long track record of winning high-value cases for high-level employees.

Get in touch with us today and we’ll help you secure the best possible outcome to your employment dispute.

Contact our employment law team on 0207 9657203

or contact us online.

What is a good settlement offer?

A good settlement agreement is fair and reasonable to both parties involved. Whilst the agreed payment and included clauses depend on your unique circumstances, the average settlement agreement should include:  

  1. Terms and conditions that are clear and comprehensive, with no room for ambiguity.
  2. A mutually acceptable resolution
  3. Adequate compensation for the employee
  4. A mutual release of existing and potential claims.
  5. A confidentiality clause
  6. Consent that both parties fully understand that it is a legally binding agreement. 
  7. Legal compliance to ensure the agreement is enforceable.

What is included in my settlement agreement?

Under a settlement agreement, you are still entitled to contractual payments before your termination date laid out in your contract of employment. Whilst the amount is different for everyone, you should expect:

  • Salary (including contracted benefits): Whilst bonuses and commission are separate from your salary, it is part of your projected income and will be taken into consideration. If you have a discretionary bonus, it will difficult to challenge your employer’s decision.
  • Notice pay (in lieu of notice or garden leave): If your company does not want to place you on garden leave and would prefer to release you immediately, you may receive the notice period payment as a cash lump sum of money.
  • Accrued annual leave: Any remaining holiday pay that you have but not taken before termination of employment should be calculated into the agreement.
  • Ex-Gratia payments: Done out of your employer’s discretion and kindness, they may wish to give you an extra payment as a thank you. This is often done to assure there is no bad blood between either party.
  • Restrictive Covenants: A non-compete clause may be placed in your settlement agreement which can significantly reduce your chances of short-term future employment.

In addition to financial compensation, you may also receive an agreed reference as part of your settlement agreement.

What Factors Will Influence the Total Settlement Agreement Payout?

A settlement agreement has no limit and is negotiated between you and your employer, ultimately coming to a joint agreement as to how much you should receive. In accordance with ACAS, many factors will come into play during these discussions including:

  • Income: The end of the employment relationship brings uncertainty regarding how long it will take you to find paid employment again. As a result, your settlement agreement should look at your annual income and be reflected in the awarding sum so you can maintain your lifestyle until you find a new job.
  • Age: If you are close to retirement age, the end of your employment can make finding a new job much harder. As a result, you need money to secure your living costs.
  • Length of service: The longer you have worked for an individual employer, the more you should be awarded. This is for a number of reasons including loyalty, contribution and industry knowledge, the latter being very advantageous to competitors.
  • Mistreatment: If your employer has mistreated you, you should gather evidence and witnesses. As your employer will be quick to deny claims, gathering evidence will help you greatly and help you win a higher settlement.
  • Employer’s finances: The financial situation of your employer will help greatly in negotiations. If they are in a strong financial position, they may be able to pay a higher price in the settlement agreement and avoid it escalating to an employment tribunal hearing.
  • Whistleblowing: If you have witnessed any wrongdoing from your employer that could be damaging if made public, your employer may include a clause in the agreement to prevent you from speaking out.
  • Legal representation: An experienced employment lawyer will be able to analyse the strength of your case and negotiate the highest possible settlement in your circumstances.

The first £30,000 of the settlement sum is tax-free, whilst any payments for contractual entitlements (such as in lieu of notice, untaken annual leave or contractual bonus) will be subject to the usual deductions of tax and National Insurance.

A settlement agreement is a collaboration between the employee and employer, and if the sought-after amount is too high, the employer may withdraw from the process and take it to an employment tribunal, where the awarded sum could be lower or nothing at all.

If you have an unfair dismissal claim go through to an employment tribunal, you are capped at either £78,962 or 12 months’ gross pay (whichever is lower).

A settlement agreement is an alternative to an employment tribunal claim. When deciding which route to take, you should seek independent legal advice from an employment lawyer to analyse the strength of your case.

Contact Our Settlement Agreement Solicitors in London

When entering a settlement agreement, it's important to seek legal advice to safeguard your rights.

At Cavendish Employment Law, we conduct thorough reviews of the terms of the Settlement Agreement for the amount of the employer’s contribution towards costs, so you won't have to pay anything. In case of negotiations, these can either be included in this fee, carried out for an agreed additional fee or on a "no-win no-fee" basis.

The absence of legal advice can result in an agreement being drafted that is to your disadvantage. Independent legal advisers will look at all of your circumstances to ensure any agreement proposed is fair to you.

If you’re facing any difficulties at work or if your employer has discussed the possibility of a settlement agreement with you, don’t hesitate to get in touch with us. One of our employment law solicitors will be able to advise you within hours of your call. To speak to a member of our team, call us on 0207 965 7203 or contact us online.

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