What is a settlement agreement?
Settlement agreements are, generally, a written agreement to provide an employee (or worker) with benefits (e.g. a payment of compensation, a reference, sometimes an apology) in return for the employee’s agreement that they will waive their right to bring such claims, or withdraw them if they have already issued a claim. See this post for a more in-depth analysis of what a settlement agreement is.
What payments should you (as an employee) expect to receive under a settlement agreement?
What you should expect to receive under a settlement agreement will, to a certain extent, depend upon the situation that you are in (for example, you can only expect to receive a statutory redundancy payment if you are being made redundant and have more than two years’ continuous employment). However, there are certain types of payments that I would almost always expect employees to receive under their settlement agreements:
- Salary and benefits to the termination date
- Notice pay: you should be paid in respect of your notice period (whether this is being paid in lieu for your notice, serving it out, or being placed on garden leave)
- Accrued but untaken annual leave accrued to the termination date: you should receive a payment in lieu of any holiday days accrued but not taken to the termination date
- Contractual sums owed to you to the termination date (e.g. bonus, commission etc.)
- Compensation for the termination of your employment: you will almost always receive a sum of money as compensation for the termination of your employment under a settlement agreement (also known as an ‘ex-gratia payment’. The value of this sum will depend upon a variety of factors (for example, the industry you work in, the strength of your clams, your seniority etc.) but, as a (very rough) rule of thumb I would normally expect for an employee to receive between two and three months’ gross salary as compensation for the termination of their employment
As well as the above payments, you can also usually expect to receive certain other forms of payment through a settlement agreement (dependent on your circumstances):
- A contribution towards your legal costs (normally £500 plus VAT, but this can be in the thousands of pounds if you are a senior employee)
- A contribution towards the cost of outplacement services
- Coverage of training costs, in some circumstances
- Coverage of relocation costs, in some circumstances (e.g. the cost of transporting your personal belongings, airplane tickets etc.)
What should you do if you think that the terms of the settlement agreement are unfair?
If you think that the terms of the settlement agreement that you have been offered are unfair then the normal appropriate course of action is to negotiate the terms of the agreement: you can either do this yourself or you can instruct a solicitor to do it for you. I would always recommend that, prior to instructing a solicitor, you have a thorough initial assessment of your matter and your settlement agreement undertaken – firms of solicitors normally will do an initial consultation for no charge.