Getting legal advice on your settlement agreement

Posted on 11th January 2021

Unfortunately, due to the raise in job losses the number of employees being asked to sign settlement agreements has also increased significantly.

What is a Settlement Agreement?

A settlement agreement (Agreement) is a legally binding document, under which the employee agrees to settle all legal claims that may have arisen from the employment or termination of employment.

This includes claims for unpaid wages (including overtime), claims for outstanding expenses, bonus payments, as well as potential compensation for any legal claims which the employee may be entitled to pursue.

Your employer might ask you to sign a settlement agreement if your role is being made redundant or where concerns have been expressed about your performance or conduct. Employers will usually pay the employee a lump sum payment in return for signing the settlement agreement.

You must get legal advice on your Settlement Agreement

Given the finality of signing such an Agreement, the law requires that before signing the Agreement, the employee must obtain advice from a qualified independent adviser, usually a solicitor. As such, it is standard practice for an employer to pay for the employee to obtain legal advice – this is referred to as the employer’s contribution to legal fees.

The contribution will vary depending on the employer but is often in the region of £350 – £1,000 plus VAT. Your solicitor will invoice the employer directly for this payment. Your total legal fees may be covered by the contribution made by your employer. However, this will depend on what legal advice you are seeking.

The ‘requirement’ to get legal advice is limited to getting advice on the terms and the effect of the Agreement. However, it is often sensible to also get advice on whether or not the settlement being offered represents a good deal – you can then make an informed decision about whether you want to engage a solicitor to negotiate a better settlement on your behalf.

It’s important to note that ‘settlement’ does not only refer to a financial settlement (the payment made to the employee under the terms of the Agreement). It also includes non-financial terms. For some employees the non-financial terms of an Agreement can be as important as the financial terms. For example, it may be important for a senior employee to have a say in any communication sent to third parties or colleagues by the employer about his/her departure. Under a settlement agreement, the wording and terms of such announcements can be agreed – this can be important in protecting the employee’s future career.

How long do I have to decide whether I want to accept the Settlement Agreement?

It can be very daunting to be confronted with a settlement agreement. This feeling is compounded where the employer sets a tight deadline for the employee to accept the Agreement.

An employer might set an arbitrary deadline, including requiring you to accept the Agreement straight away. This is often a tactic which is used to get the employee to agree to the terms offered so that the Agreement can be finalised as soon as possible.

Your employer should not set an unreasonable deadline for you to accept the Agreement.

According to Acas guidance employees should be given a reasonable time to consider the proposed settlement. What is reasonable will depend on the circumstances, but as a general rule you should be given a minimum of 10 calendar days to consider the Agreement.

However, it might be in your interest to accept the agreement sooner rather than later. This will depend on your circumstances. As such, you should seek legal advice at the earliest opportunity.

Can I instruct a lawyer of my choice?

We have also seen a raise in some employers insisting that the employee seek advice only from a prescribed list of lawyers, which is provided to the employee by the employer.

For the Agreement to be valid, you need to have received ‘independent’ legal advice on the terms of the Agreement.

Your employer cannot dictate your choice of lawyer. You are free to instruct a lawyer of your choice. However, your employer may suggest that it will only pay the contribution if you chose a lawyer from its list. This is often also a tactic used by employers to ensure the Agreement is concluded without delay but is something which can easily be challenged. As the employer will be keen to conclude the Agreement and will not want to undermine the validity of the Agreement by suggestions that the employee had not received independent legal advice.

For advice on your settlement agreement please contact our employment law expert solicitors on 0808 231 6369 or request a call back online.

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