A Guide to Settlement Agreements in Employment Law was last modified: January 27th, 2022 by
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Settlement Agreements are legally binding contracts which usually see a payment of compensation being made by an employer in return for an employee agreeing not to pursue any claims relating to the employment. Once a valid settlement agreement has been signed, the employee will be unable to make an employment tribunal claim about any type of claim which is listed on the agreement. For the settlement agreement to be legally binding the following conditions must be met. The tax position depends on the nature of the payments made under the settlement agreement. Wages, holiday pay, bonuses, commission, & contractual paymentsare all subject to usual deductions for income tax and national insurance. Termination Payments, compensation, redundancy pay and/or ex-gratia payments. Generally, the first £30,000 of compensation for loss of employment is not subject to tax or employees’ National Insurance contributions. Payments made over £30,000 are subject to tax. From April 2018 all payments in lieu of notice taxable (contractual and compensatory) are expected to be taxable. Settlement Agreements are used in many employment situations, including: Settlement Agreements are often used in redundancy scenarios, where the employer offers to pay the employee more than the basic statutory redundancy pay entitlement. In exchange for paying more, the employer may require the employee to sign a settlement agreement. The employer may not be happy with the employee’s standard of work. Rather than go through a formal performance improvement plan / procedure, the employer may decide to offer the employee an alternative to leave earlier in the procedure and receive a settlement payment under a settlement agreement. If an employee is not capable of work because of illness or a lack of skill or experience, one option may be to agree to the employee leaving under a settlement agreement. Sometimes, both parties would prefer to agree an earlier amicable settlement rather than go through a long drawn out capability procedure that might end in dismissal. Sometime the work relationship breaks down between the employer and employee, or the employee and colleagues. The parties may prefer to agree an amicable parting, where the employee receives a severance / termination payment. The employee may have grievances and potential claims against the employer for the way she/he has been treated at work. Rather than bring employment claims, an agreement may be reached and recorded in a settlement agreement. If the settlement agreement is ready to sign, a solicitor will advise you on the terms and effect of the agreement and send a legal adviser certificate to your employer. In the present climate, this can be completed on the telephone and via email. There is usually a provision in the agreement for your employer to contribute towards your legal fees, subject to that contribution being reasonable, your solicitor will then invoice your employer directly when the agreement is signed-off. If you are not happy with the agreement, your solicitor will negotiate a Settlement and give careful consideration as to what is achievable under an agreement. You may wish to make changes to the Settlement Agreement wording. For example: Not all claims can be settled by means of a Settlement Agreement, for example the right to statutory maternity, paternity and adoption pay and claims under the Agency Workers Regulations 2010. It is also usual for an agreement not to compromise an employee’s accrued pension right. There is usually a clause dealing with personal injury claims stating either that the agreement does not affect any personal injury claim that the employee may have or a clause signing away the employee’s right to pursue claims for injuries of which he/she is already aware. To contact P.A.Duffy & Co Solicitors, please call our Dungannon office on 028 8772 2102 or Dublin office on 01 533 7860. Alternatively please complete a confidential Online Enquiry Form and we will soon be in touch.
What is a Settlement Agreement?
Reaching Agreement
Is a settlement agreement payment agreement tax-free?
Payments in lieu of notice
In what situations are Settlement Agreements used?
Redundancy:
Disciplinary:
Sickness / Incapability
Work relationship breakdown
Employee Grievance
What happens if I accept the settlement offer and need a solicitor to sign it off?
How much does this legal advice cost?
What happens if I am not happy with the Agreement?
Examples of changes to the Settlement Agreement wording
Are there any claims that cannot be settled by a Settlement Agreement?