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Settlement Agreements

Settlement Agreements

What is a Settlement Agreement?

A Settlement Agreement (previously known as Compromise Agreements) is an agreement commonly signed on or before termination of employment. The Settlement Agreement terminates your Contract of Employment on the terms set out in the Settlement Agreement. By signing the Agreement an employee agrees to waive their rights to bring certain claims against their employer, normally in respect of their employment and/or termination of their employment.

Who writes a Settlement Agreement?

Normally, Settlement Agreements are prepared by the employer or its legal or professional advisors, including HR.

Are Settlement Agreements binding?

In order for the Agreement to be legally-binding, employees are required to seek independent legal advice on the terms and effect of signing the Agreement from a qualified advisor, normally a Solicitor. A Settlement Agreement is binding once it has been signed by all parties and the Advisor has completed the certificate confirming that legal advice has been given.

Are Settlement Agreements taxable?

Generally, employers may be able to pay the first £30,000 compensation for the Settlement Agreement tax free, but this will depend on the nature of the payment and the basis on which they are paid. This will not apply to all payments.

Do I have to accept the Settlement Agreement?

You do not have to sign the Settlement Agreement but it would be sensible to seek advice on your specific circumstances before making any decision. You are entitled to negotiate or reject the terms in a Settlement Agreement but it is recommended that you seek legal advice prior to taking any such action. Your employer will normally pay a contribution towards your legal fees for taking advice on the terms and effect of any Settlement Agreement. Generally, this contribution will not include any legal fees incurred in negotiating the terms which you will be required to meet.

We are experienced in advising on Settlement Agreements and negotiating terms. We can explain what the Agreement says so that you know what you are agreeing to and advise you on any changes we would recommend so that you can decide if you wish to negotiate the terms or sign the Agreement as it is.

If you have been offered a Settlement Agreement and would like us to guide you through the process, please contact us.

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