On the 29th of July 2013, the government made a number of changes to employment laws in the UK. A major part of those changes saw compromise agreements replaced by settlement agreements.
What’s the difference between the two, and how do they compare? Our employment solicitors provide answers below.
What is a Settlement Agreement?
Rather than go through the court process, sometimes employers and employees will decide to enter into a settlement agreement. A settlement agreement is a legally-binding agreement between an employer and employee.
Both parties enter into the agreement to record and implement the terms on which they agree to settle any potential or actual claims which the employee has or may have in connection with his or her employment. Such an agreement is most commonly reached where employment has been terminated or is about to do so, although it may also be the case that employment is continuing.
Statutory claims that may be settled by entering into an agreement include claims for unfair dismissal, breach of contract, unlawful deduction of wages, and discrimination under the Equality Act 2010.
How Are They Different to a Compromise Agreement?
They are not. In July 2013, compromise agreements were renamed as settlement agreements as a more accurate description of what the parties’ intentions were.
In addition to the name change on 29th July 2013, the government introduced the concept of pre-termination negotiations. These made it easier for employers to begin settlement conversations while reducing the risk that these conversations would be used in tribunal proceedings
Pre-termination negotiations are prevented from being referred to in evidence in an ordinary unfair dismissal case unless there has been ‘improper behaviour’. The inadmissibility rule excludes cases in which the claimant is alleging that the dismissal was for one of the automatically unfair reasons, for example, whistle-blowing or health and safety. It also does not cover proceedings for other claims such as discrimination or breach of contract.
For example, if a pregnant woman was called into a meeting with her employer and informed that she may want to think about leaving with compensation, the conversation probably wouldn’t be protected. That’s because she would have grounds for suspecting the redundancy was because of her pregnancy.
What Costs Are Involved?
In order to become legally-binding, the employee must obtain independent legal advice to ensure that they understand the terms of the agreement.
The employer will usually make a contribution toward such costs, typically around £250 + VAT upwards, depending on complexity.
Should I Accept the Settlement Agreement?
An independent advisor is only required to advise on the terms and effect of the agreement. However, when considering whether or not to accept the terms, it is also important to weigh the pros and cons of the deal on offer.
At Howells Solicitors, our employment department can advise on whether the package constitutes a ‘good offer’ with reference to your other potential claims. We can also conduct negotiations with the legal knowledge to deliver the best outcome.
What Should I Consider?
When making a decision, give thought to the following:
- What statutory rights you have and what you are giving up
• The financial value of the offer
• The non-financial value of the offer
• The restrictions placed upon you by entering into the agreement
• The impact upon your entitlement to any future benefits
Read more: 8 Questions to Ask if You’ve Been Offered a Settlement Agreement
Howells Can Help
If you have been offered a settlement agreement, are facing the possibility of redundancy or are looking to broker an exit from your employment, you will need the best help possible.
Our team of experienced legal professionals are always on-hand to help with your employment difficulties. Get in touch with our employment law solicitors and see what we can do for you today.
