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Have you been offered a settlement agreement (formerly known as a compromise agreement) by your employer? If so, before you make any permanent decisions about your future, there are a number of questions you need to ask yourself – and your employer – to ensure you’re getting the best possible deal:

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1. Is the price right?

For the majority of employees undergoing settlement agreements, the process allows them to make the most of a bad situation by achieving a level of financial security without the worry and potential financial risk of litigation. 

However, it’s important to ensure that your settlement agreement isn’t selling you short. Talk to legal experts who can analyse your claim and look with you at three different factors to check what you’re entitled to:

  • How much you can expect to get from a claim, if successful
  • How likely your claim would be to succeed
  • How much you’d pay in legal fees to take the case further

You’ll then be able to evaluate your position and know whether to attempt to negotiate your agreement or not. You can decide to do this yourself or we can enter into negotiations with your employer on your behalf.


2. How much will I pay for legal advice?

It’s a legal requirement for employees to obtain legal advice, if a settlement agreement is to be binding. Thankfully, in the majority of cases, the legal fees will be covered by the employer as part of the process.  

Nevertheless, it’s important to double-check your employer is paying for your legal advice.


3. Have I been offered a reference?

Because settlement agreements are often used as a way to draw a line under potential unfair dismissal or discrimination cases, it’s important to think about your future employment during the process. 

You need to be sure that the settlement agreement includes an agreed reference so that your chances of finding work in the coming months aren’t affected. 

4. How much time would legal action take?

As well as being potentially costly for an employer, proceeding with a claim within an employment tribunal can also be very time consuming and stressful, so you should talk through your circumstances with your solicitor and establish your options before making a decision. 


5. Are there any restrictive covenants in your agreement?

Restrictive covenants are sometimes put in a settlement agreement to prevent you from acting in particular ways after leaving your job. For instance, you may be prevented from working for a direct competitor or ‘stealing’ any of your current company’s clients. 

If there are restrictive covenants in your agreement that may affect your employability, you might find that it’s possible to demand a higher lump sum. 

6. Do I have to pay tax on my agreement?

If an amount is being paid as compensation, the chances are you won’t be taxed, as settlement agreements are tax free for the first £30,000 you are paid. But if you’re owed more than this, it may be worth taking some tax advice or consider whether the amount you’re taxed makes legal action more appealing financially. 

Payments in relation to any contractual entitlement, such as outstanding holidays and notice pay, will be subject to tax and national insurance deductions.



7. Will I be paid bonuses that I’m owed?

In many contracts, agreements about bonuses are stated to be discretionary and may only be paid out after a previously-agreed term. This means that, in the event that you’ve been offered a settlement agreement, you might not be able to enjoy the bonuses that you’ve earned. 

As with many of the other issues, it’s worth talking this through with your employer and potentially using it to secure a larger payment from your agreement. 

8. Am I sure?

It’s important to remember that settlement agreements are legally binding. Once you’ve taken legal advice, negotiated your terms and signed upon an agreement that your employer is happy with and suits you, there’s no turning back. That’s why getting the right advice, taking your time and asking all the right questions is essential.  


Let Howells Help

If you have you been offered a settlement agreement by your employer, talk to our expert employment law solicitors today at Howells. We can guide you through the proposal and ensure you’re committing to an agreement that suits you.

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