What Should I Ask for in a Settlement Agreement?

Your employer can open settlement discussions with you at any time. Before making a settlement offer, they may want to discuss various issues with you first and explain what they’re proposing.

At this discussion stage, you’ll be asked to agree on the terms of your final settlement agreement.

Usually, this involves the employer providing a proposal, outlining the terms of compensation they’re prepared to give you, and giving their reasons for making the settlement offer in the first place.

You should reach an agreement at the end of these discussions about what the written settlement offer will include.

After this, the employer will submit a written offer to you. If you’re happy with it, they will then arrange for a solicitor to draft a formal settlement agreement for both parties to sign.

The entire process of reaching an agreement you can agree on with the employer can take time. ACAS recommends a minimum of 10 days.

There will be circumstances that are specific to your employment that will determine what your settlement agreement offers, but there are details that all settlement offers should include.

These are:

• Settlement payment, and
• Non-financial terms.

You should make sure that your written settlement offer includes a full breakdown of the payments that it includes.

It should also be clear whether these are tax-free. Under current rules, you can receive up to £30,000 that won’t be liable for tax. The payment you receive in your settlement is known as ex gratia.

This means that even though the employer is paying you in exchange for your agreement to end your employment, the employer admits no liability.

Any payments you receive over the £30,000 limit are likely to be taxable. You should check with your employer and HMRC if this applies to your settlement agreement.

There can be several factors the employer will look at when putting together your payment offer:

• How long you’ve worked for them
• The reasons for making the offer
• How difficult it would be to replace you
• How long it might take you to find a new job
• What it would cost to go to a tribunal instead.

The employer may not have considered all these issues, and if you feel that there are factors that need including in payment calculations, you should raise them at this stage.

The whole process should be transparent and open to discussion.

You should expect to see various non-financial terms in your settlement agreement.

Some of these are for your employer’s benefit, but some are for yours, such as an agreed reference. If the proposed agreement doesn’t include a reference, you should ask for one.

The reference should include details of:

• The start and end dates of your employment
• Your job title and description of your main duties
• An assessment of how you’ve performed these duties
• A statement about your timekeeping and integrity as an employee.

There’s no requirement for your employer to provide a favourable reference, only one that’s true. However, depending on your work record, you could negotiate for the reference to include a personal statement from your manager.

A positive reference is a useful tool to help you gain future employment, so it’s worth asking for as part of your agreed settlement terms.

Another common non-financial term is a confidentiality clause, to make sure you don’t disclose details of your settlement, the reason for it, or the amount you’ve received, to anyone else.

This is to protect the employer. They may also wish to include a clause that prevents you from making derogatory comments about them once you’ve stopped working for them.

These are standard and commonplace non-financial terms included in settlement agreements.

A settlement agreement can only be legally binding once you’ve taken independent legal advice about it.

The independent adviser you use for this will then be named in the legally binding settlement agreement that you and your employer must sign.

To complete this process, you’ll need to take a written copy of the settlement agreement to a solicitor, who can then go through all the clauses in the agreement.

The solicitor will advise you on the impact the agreement will have on your legal right to pursue any future employment claims, explaining to you the terms of the settlement and their effects. They can also provide advice about specific wording, should you wish to negotiate this further with the employer before signing.