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Settlement Agreement Solicitors - Compromise Lawyers
When an employee involuntarily 'leaves' an employer, the well advised employer will want the departing employee to sign what is called a Compromise or Settlement Agreement. The employer will often volunteer to pay for the employee to see a solicitor so that the solicitor can give advice and 'sign off' the document outlining the terms. Employers do not agree to do this out of the goodness of their heart. They know that once the settlement agreement solicitor has signed the document, then the employee cannot change his mind later and bring a claim against the employer. If the employee thereafter feels that rights should not have been signed away or compromised in exchange for cash, then he can only bring a claim against the solicitor for negligence. The disgruntled employee has no come back against the employer. Thus the payment of a contribution towards the settlement agreement solicitors fees gives the employer peace of mind and so far as he is concerned is a small price well worth paying.
There are of course technical aspects to any settlement agreement and these largely revolve around exactly what claims have been compromised and the taxation position. The document will often provide for a payment which is within the current tax exemption limit for payments made on the termination of employment. If the parties have got the tax position wrong and the employer should have deducted tax from what is paid over to the employee, then the document will usually contain a clause whereby the employee agrees to indemnify the employer against the employer having to pay tax and national insurance on the monies paid over. The Inland Revenue would usually look to the employer for the tax and national insurance which the employer should have deducted. The usual terms are that if the employer did get it wrong and he ends up having to pay to the Revenue, then the employee has to reimburse not only the tax and national insurance, but also any interest and any penalties which the Revenue might levy on the employer. Another frequently occurring provision of a settlement agreement which might involve taxation complications is where the departing employee agrees to be bound by a new set of restrictive covenants.
The moral must be for the employee not to treat the settlement agreement as a mere formality but to seek the advice of an independent solicitor. Before seeing that independent solicitor the employee should let the settlement agreement solicitor know what claims (if any) he thinks he might have about the way he has been treated. As well as sending the solicitor a copy of the proposed terms in advance of seeing him, the employee should also let the solicitor have a copy of the relevant contract of employment. The moral for the employer is to make sure that he cannot be exposed to a claim a few months down the road after the employee has left.
Settlement Agreement Solicitors
Our specialist employment solicitors operate exclusively in all areas of dispute between employees and employers and they do nothing else which enables them to achieve your goals in the most efficient and practical way possible. In most cases the employer pays the employees legal cost in regards to the lawyer considering the terms of the agreement on behalf of the employee and of advising the employee accordingly. If you would like an initial free consultation for advice about your situation you can call the helpline or complete the contact form or email our offices. If after talking to a specialist lawyer you decide not to take matters further you are under no obligation to do so and you will not be charged for our initial advice session.
Frequently Asked Questions
Settlement Agreements formerly known as compromise agreements are legally binding documents that set forth all of the terms on which an employment relationship will end. Upon termination of employment it can be utilised by an employer to ensure that the employee will not bring any legal claims against them. In return for giving up their right to bring a claim to an employment tribunal, the employee receives a set amount of compensation. These are important issues for most businesses and in the relevant circumstance employers are well advised to obtain qualified compromise agreement legal advice at the first opportunity following dismissal or anticipated dismissal.
- details about the amount of compensation the employee is to receive and related issues of taxation
- full and final settlement of any claims which the employee has against the employer
- any matters which are to remain confidential
- any restrictions being placed on the employee’s future employment
- the reference that will be provided to future prospective employers
- assurances provided by the employee and employer
- is in writing
- relates to a particular complaint held by the employee
- is entered into only after the employee has received legal advice from an independent, qualified adviser with indemnity insurance
- identifies the adviser
- states that all of the requirements for a valid compromise agreement have been met
What does a settlement agreement consist of?
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. For the most part, however, all settlement agreements cover the same key matters:
What conditions must be met for a settlement agreement to be valid?
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 on a settlement agreement from a lawyer is essential. A settlement agreement is valid and enforceable if it:
What are the advantages of signing a settlement agreement?
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 a settlement agreement both parties know with certainty the specific amount of compensation to be paid and received at an early stage.
Is an employee required to sign the settlement agreement
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.
How soon must payment be made
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.
Is the compensation subject to taxation?
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.
Does a solicitor have to be involved?
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.
How much does it all cost?
In most cases the employer covers not only their own legal charges but also the expenses that the employee incurs while obtaining legal advice.
If you and your employer are discussing terms for termination of employment which is outside of the basic statutory requirements it is important that you obtain qualified legal advice so that, in the heat of the moment, you do not sell yourself short and receive a sum that is inadequate in consideration of the terms of the agreement which may in fact justify payment of a much higher sum. Our employment lawyers offer free initial advice and in most cases their legal costs will be covered by the employer. Just call the helpine or email our offices for free initial advice with no further obligation.