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What to Do When You Receive a Settlement Agreement

By: James Cummings

It's going to be difficult deciding what to do when your employer offers you a settlement agreement. A settlement agreement would normally be given to an employee when the employer has decided to terminate the employment contract.

A settlement agreement may be given to an employee if the employer believes they have behaved badly or are not performing optimally in their job. Sometimes, the employee will know about their employer’s dissatisfaction, while others will be in total shock when they receive a settlement agreement.

Signing a settlement agreement automatically terminates the employment contract, and in return, the employee gets certain employment rights and a sum of money as compensation. Refusing to sign a settlement agreement can be dicey, as the employee may have to deal with redundancy or disciplinary procedures. The decision of whether or not to sign is one that has to be considered carefully. Read on to find out what you need to know before you sign a settlement agreement.

What is a settlement agreement?

Once known as a compromise agreement, a settlement agreement is a legally binding contract made between an employee and his or her employee before or immediately after employment has been terminated. It represents a final sign-off before the termination of employment and contains the terms of the deal, which would usually entail an amount of money being offered in return for certain conditions, for example, not bringing claims against the employer.

Not every settlement agreement will be the same, but you can expect the documents to include a gagging or confidentiality clause to prevent you from bad-mouthing your employer, the payment to be issued to you alongside the relevant tax issues, and the clauses to be settled. The major advantage of entering into a settlement agreement is to facilitate a clean and amicable break between an employee and the employer.

What should you do next?

Like with other legal matters, you should get legal advice from a qualified solicitor or advisor experienced in labour and employment issues, such as LKC Law Firm. Normally, an employer is expected to pay the legal costs for this.

You are legally required to get legal advice from an independent qualified professional, and the agreement will only be binding after this. You need a solicitor to help you consider the details of the settlement and determine whether you are getting a fair deal, or if there are feasible grounds to initiate a claim.

Before you decide whether an agreement is reasonable or not, you have to think about why you are being offered the agreement in the first place, the rights you’ll be waiving, and of course, if the amount you are being offered is fair. An employment solicitor might also be able to help you negotiate a better deal.

What if you don't want to sign?

It is not compulsory to sign a settlement agreement. If you decide not to sign, you can make a claim against your employer, but you must proceed with your claim within the time limit of 3 months less one day from the time the agreement was offered.

What happens if your employer engages in illegal conduct after you sign?

The only claims you waive in a settlement agreement are those which have occurred up to the date of signing. It is still possible to bring a claim against your employer concerning any actions or conduct which they may have taken against you after you sign. Again, a lawyer will be in the best position to advise you based on your particular situation.