Reasons to choose Wilson Browne
If your employer makes the offer of a settlement agreement to you, one of the factors you should consider is how accepting it might affect your ability to find your next job.
The settlement agreement is designed to work in such a way that both you and your employer are happy with the outcome.
However, the agreement itself may have an impact on what happens when you want to find work after leaving your current employment.
How Does a Settlement Agreement Work?
Employers use settlement agreements to end employment contracts without going to an employment tribunal or undertaking the redundancy process.
The chief principle of the settlement agreement is that it should be something that both your employer and you can agree on mutually.
It’s a way of ending your employment with a clean break.
Although settlement agreements are entirely voluntary, it is legally binding when both you and your employer sign the agreement.
Settlement agreements typically involve a provision for you to receive termination payment and certain benefits in return for you giving up any rights to bring any claims against your employer.
There may be an agreed reference attached to your settlement agreement to help you find future work. There can be other clauses, such as confidentiality clauses or clauses that prevent you from saying anything bad about your employer once you stop working for them.
For the agreement to be legally valid, it has to meet various statutory requirements. It must:
- Be in writing
- Relate to a specific complaint or proceedings
- State that it meets the statutory regulations covering settlement agreements.
It’s also a requirement in law that once you’ve agreed on the settlement offer with your employer and received the agreement, you then get independent legal advice on the terms and effect of the proposed agreement and your ability to pursue any rights before an employment tribunal before signing it.
This is very important because the wording and content of certain clauses may impact how you get a job after the settlement agreement.
The agreement must identify the independent adviser, and they must be covered by a current contract of insurance or professional indemnity insurance.
Will You Get a Reference?
It’s normal for a settlement agreement to include a clause stating that your existing employer is willing to give you a reference. This should help you find your next job.
But this is not a legal requirement. If you want a reference as part of your agreement, you will have to make sure the employer is willing to include it.
You should also watch out for what the agreement says the reference will include. A standard reference is a very simple document that basically states your job title and your dates of employment. If you want a reference that contains more than this, you will need to ensure this requirement is in writing as part of the settlement.
Remember, too, that your employer has a legal obligation not to write anything in your reference they believe to be false or misleading. If you’ve agreed to a settlement due to differences or clashes at work, this may have an effect on your reference.
Can a Settlement Agreement Restrict Your Job Searching?
It all comes down to what the written agreement contains. In some cases, your employer may include clauses that prevent you from working in a specified field for a certain amount of time. Similarly, a clause may prevent you from working with your employer’s competitors or customers.
These restrictions are known as restrictive covenants.
You may need to check your original employment contract to see if these restrictions applied when you first took a job with your employer.
This is important because restrictions in settlement agreements may simply state that you agree to be bound to the restrictive covenants in your employment contract. If something in the agreement refers to something else in your original contract, you should always cross-check these details.
The settlement agreement may also ask you to confirm that you do not currently have a new job at the time of the agreement. Because if you had taken a new job already, this could affect the amount of your payment settlement from your previous employer.
Where restrictive covenants do apply, they shouldn’t last for too long. Normally, this is six months maximum.
You should always take independent legal advice before agreeing to any restrictions in your settlement agreement.
Will Your Settlement Agreement Cover Your Costs?
The aim of the settlement agreement is for you and your employer to part company on terms that benefit you both. It’s not uncommon for the employee to receive a cash payment in addition to payments and benefits that the employer owes them. This lump sum could be tax-free and should help to bridge the gap between leaving one job and finding another.
It’s also standard practice for the employer to pay for the employee’s legal fees for the settlement agreement.
Does Your New Boss Need to Know About the Settlement?
Most settlement agreements include a confidentiality clause as standard practice. How much this covers will depend on the specifics of your settlement. Sometimes it just covers the amount you’ve received. But check whether it covers the entire contract.
If this is the case, you could be in breach of contract if you tell your new employer about it.
Getting good, clear, independent legal advice is crucial for settlement agreements. For more information, please contact us.