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Key Considerations for a settlement agreement

View profile for Nilam Dave
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A settlement agreement will be tailored to the specific circumstances of the employee, but there are key considerations for all settlement agreements to ensure the proposed deal is covered and we have highlighted the main ones below.

1. Scope of settlement:

Carefully consider which claims the settlement agreement covers. If they employer wants to ensure they are covering existing, unknown and future claims wording will need to be added to that effect so that the agreement is in full and final settlement. However, there are a small number of claims that cannot be compromised under the terms of a settlement agreement.

2. Payment of a settlement sum:

In general, the objective of the parties under the settlement is to substitute the existing rights (e.g. those relating constructive/unfair dismissal) with a right to be paid a certain amount.  The settlement agreement should reflect this.

The settlement agreement should also cover when the payment will be made by.

It is also important to check the tax position on any payment.

If it is a redundancy situation, you can check the statutory redundancy entitlement by checking the online calculator available at https://www.gov.uk/calculate-employee-redundancy-pay.

3. Confidentiality:

The inclusion of a confidentiality clause in the settlement agreement is common. There are limited circumstances in which disclosures can be made, including compliance with the law; requirements of any regulatory body (e.g. HMRC) or for the purposes of enforcing the terms of the settlement agreement (such as payment). However care must be taken not to exclude public interest disclosures (known as whistleblowing).

4. Agreed reference:

The reason for leaving the company may not be amicable, so it is good practice to have agreed wording of the reference recorded in the settlement agreement. This will be the reference issued for all future reference requests.

5. Contribution to fee for independent legal advice:

Agreeing to give up rights to bring claims against the employer under the settlement agreement will only be valid if independent advice is taken by the employee. The employer will usually contribute towards the legal fee. This should be recorded in the settlement agreement, taking VAT into consideration.

This is not legal advice; it is intended to provide information of general interest about current legal issues.