They’re seen more now than perhaps ever, especially as a result of the pandemic. But exactly what is a settlement agreement?
Settlement Agreements are legally binding contracts in which an employee waives their right to bring future claims against an employer in exchange for compensation. They are often used to end an employer / employee relationship although they aren’t exclusively for this purpose.
Do I have to accept a Settlement Agreement?
In short no. For any settlement agreement to stand, both employee and employer must agree. While there is nothing to force you to accept, an employer is required to give you at least a 10 day period in which to decide on your decision.
You are well within your rights to turn down a settlement agreement, however it is worth thinking about a number of points before deciding one way or another.
If you do refuse a settlement agreement you are still technically employed until either you or your employer brings your employment to an end.
If your employer has signalled to you that the offer was an alternative to redundancy, then the next stage if you refuse would likely be for your employer to begin the redundancy consultation process.
Consider:
- if furloughed, will you be on the furloughed rate of pay or full pay during the consultation process;
- how long the redundancy process will be. This can vary from days to weeks depending opon the number of redundancies being made;
- the amount of redundancy pay you will receive, compared to the amount you will receive by agreeing to the settlement agreement;
- that you will lose your right to any claims for unfair dismissal if you sign a settlement agreement.
How much am I entitled to?
Any settlement agreement should be at least what you would have been paid if you’d been made redundant. It would not make sense to accept less than you would otherwise be given.
As an example, it should at least include your redundancy entitlement, based on:
- your age; and
- your contractual salary;
- your length of service.
Any statutory redundancy payment is always tax free. The government’s redundancy pay calculator can help you work out how much you are entitled to.
Can I negotiate a settlement agreement?
Absolutely, yes you can. If you are offered a settlement agreement and you are not happy with the figures offered you are as equally within your rights to negotiate it as you are to reject it. It would be wise to put yourself in your employers shoes and consider why they should offer you a more attractive agreement.
What if I want to accept a settlement agreement?
Before you accept any settlement agreement, you must obtain legal advice. If you accept without this, it will not be a legally binding agreement.
With coronavirus and the ongoing pandemic however, face-to-face meetings with solicitors are becoming rarer, albeit not completely impossible. Phone or video meeting are absolutely fine however the settlement agreement must be either electronically or physically signed.