Settlement agreements are legally binding contracts made between an employer and employee when the employment relationship comes to an end. Settlement agreements are frequently used when the employee is leaving their employment for a wide variety of reasons, such as redundancy, or to end the employment relationship part way through grievance or disciplinary proceedings.

I can advise both employers and employers on settlement agreements. For more information about my experience and qualifications click here https://www.duxburyssolicitors.co.uk/about-me

Whatever the reason for the settlement agreement, the employer is almost always motivated by:-

  • a strong preference for peace of mind with regard to knowing that the employee cannot bring a claim against them;

  • by speed, as the alternative of using formal policies and procedures is often time consuming;

  • the desire for confidentiality.

Under a settlement agreement the employee will typically be paid a compensation payment or termination payment, up to £30,000 of which can be paid to the employee without deductions for tax, plus other payments that are likely to be owing to them following the termination of their employment, including outstanding pay and benefits, pay in lieu of notice and outstanding accrued holiday pay.

Settlement agreements are not legally binding unless both parties have signed the settlement agreement and the employee has taken independent legal advice and the employee’s solicitor has signed an adviser’s certificate.

In almost all cases, the employer will make a contribution to the employee’s legal fees, typically £500 plus VAT. There is no set amount, so the contribution to an employee’s legal fees is entirely at the employer’s discretion.

If it turns out that the employer’s contribution to the employee’s legal fees will not cover the legal fees in full, then I can ask the employer to increase the contribution. There is no legal obligation on the employer to agree but in many cases they will do so, particularly if the additional legal fees incurred are necessary to ensure the settlement agreement is drafted correctly, especially in relation to the tax treatment of the different payments.

Settlement agreements range from those with relatively straightforward terms, where the agreement can be signed off promptly with little or no amendments, to much more complicated scenarios where a significant number of the terms need to be revised and the termination payment is increased substantially.   

Legal Costs for advising employees on settlement agreements:

I charge at an hourly rate of £220 per hour. No VAT will be charged.

  • Provided the settlement agreement is signed by both parties which almost always happens, the agreed contribution to the employee’s legal fees will be invoiced directly to the employer.

  • Assuming the settlement agreement is signed by both parties, the employee will only invoiced be for the balance of the legal fees, if any.

  • For example, if the agreed contribution to the employee’s legal fees is £500 but the total legal fees are £600, the first £500 will be invoiced directly to the employer and only the balance of £100 will be invoiced directly to the employee.

  • Most settlement agreements are either simple and straightforward, or of medium complexity.

Likely Range of Legal Costs:

Simple and straightforward settlement agreement: £400 to £600 (No VAT will be charged)

Medium complexity settlement agreement: £600 to £1,200 (No VAT will be charged)

High complexity settlement agreement: £1,200 to £1,800 (No VAT will be charged)

Disbursements

Disbursements are costs related to advising on a settlement agreement that are payable to third parties, such as court fees or counsel’s fees, There will be no disbursements payable when taking advice on a settlement agreement.

Factors that could make a settlement agreement more complex:

  • The amount of one or more of the payments to be made is not agreed between the parties so negotiation is required.

  • Allegations of discrimination by the employee.

  • The employee is signing the settlement agreement more than around 6 weeks in advance of the termination date. In some cases this will mean that the employer will insist that the settlement agreement is signed twice, once when it is entered into, several weeks in advance of the termination date; and again typically within 7 days of the termination date. The employer will usually make a higher contribution to the employee’s legal fees if the settlement agreement has to be signed twice.

  • The tax treatment of one or more of the payments to be made under the settlement agreement is wrong and needs to be corrected.

  • The indemnities given by the employee are too strict and need amending.

  • The Post Employment Notice Pay (PENP) calculation is missing or incorrect.

  • The post termination restrictive covenants operating for a defined period immediately following the termination date are too strict and need to be renegotiated.

  • The general standard of drafting in the settlement agreement is poor and it has not been drafted to reflect the employee’s circumstances.

To discuss your situation please call me on 07900 695142.