Should I accept a settlement agreement? Our solicitors explain

In this article one of our specialist employment solicitors, Chris Hadrill, answers the question: “should I accept a settlement agreement?” and explains what employees should look out for when they are being offered a settlement agreement

1. What is a settlement agreement?
2. Should I accept a settlement agreement that I have been offered?
3. What should I do if I don’t want to accept the settlement offer?
4. What should I do if I want to accept the settlement agreement that I have been sent?

What is a settlement agreement?

A settlement agreement is a legally-binding contract between an employer and an employee, under which the employee agrees to accept some form of benefit (normally a sum of money) in return for agreeing not to bring particular legal claims against their (former) employer. This is why the agreement is called a “settlement agreement” – the employee is agreeing to “settle” their right to bring certain claims in the Employment Tribunal or civil courts.

Why would I be offered a settlement agreement?

There are a number of reasons why you might be offered a settlement agreement – among others:

1. Your employer could be worried about the strength and values of claims that you might have against them, and therefore might be offering you the settlement agreement in order to settle those claims;
2. Your employer could offer settlement agreements to departing employees as a matter of practice in order to neatly conclude the termination and avoid ‘loose ends; and/or
3. Your employer’s legal advisers might advise them to offer a settlement agreement for another reason (for example to reinforce restrictive covenants that you are subject to, impose fresh obligations of confidentiality, ensure your assistance with a matter after termination of employment)

Do I have to accept a settlement agreement offered?

The short answer is no, you do not have to sign a settlement agreement. However, it’s almost always a good idea to carefully consider what you are being offered by your employer in order to allow you to make an informed decision about how to proceed: consider what you want out of the situation; whether you would be prepared to go back to your job if you reject the settlement agreement; and whether what you want (in terms of your settlement agreement) is achievable.

A good tip is to speak to different people that you feel that you can trust in your situation: speak to family, friends, and employment lawyers – you will want to gather opinions from both people who know you well and, also, people who can offer you practical, realistic and expert advice on your situation (i.e. the lawyers). Lots of lawyers are happy to have a free initial consultation with you (we also offer this) in order to give you some guidance on what they think of your situation and what they would advise as next steps.

Should I accept a settlement agreement that I have been offered?

You generally have three options if you have been offered a settlement agreement:

1. Accept the settlement agreement;
2. Make a counter-offer; or
3. Reject it

These options are explained in more detail below.

Accepting the settlement agreement

One option to you is, of course, to accept a settlement agreement that you have been offered. However, unless the offer that you are being presented with is absolutely incredible it is, in my experience, generally advisable to – prior to accepting the settlement agreement – seek legal advice from an employment solicitor and then to try and to amend what you can in the agreement. The general rule is that ‘if you don’t ask you don’t get’ and there are almost always clauses in settlement agreements which need to be amended to render them fair.

Making a counter-offer

As above, it is generally advisable to try and push back on the terms of your settlement agreement before accepting it. The most common types of clauses to push back on are (among others):

1. The compensation payment (read our article here on how much your settlement agreement may be worth;
2. The other financial terms (notice pay, holiday pay, bonus, commission etc.);
3. Any restrictive covenants that you may be bound by;
4. The confidentiality clauses under the settlement agreement;
5. The tax indemnity clause

Rejecting the settlement agreement

In my experience it is generally not a good idea to reject the offer of a settlement agreement without even trying to try and obtain better terms first – unless you make a counter-offer you won’t know whether what you want to achieve is obtainable. 

Further reading: negotiating the terms of a settlement agreement – 10 top tips

Get specialist legal advice

You might say: this guy is an employment lawyer, of course he is going to say this. However, employment solicitors are expert in employment law and settlement agreements – we know what we’re doing, what we’re looking for, and what is achievable with your exit package. Give a lawyer a call first in order to explore what they think can be achieved in your situation and then, if you’re comfortable with that lawyer, consider whether you want to formally instruct them (your employer will almost always pay towards the cost of the legal advice for your settlement agreement).

What should I do if I don’t want to accept the settlement offer?

If you don’t want to accept the settlement offer then you can either withdraw from the agreement or you can go back to your employer to see if you can obtain better terms. In most circumstances, as above, it is wise to try and make a counter-offer before deciding whether to accept or reject the settlement agreement.

What should I do if I want to accept the settlement agreement that I have been sent?

If you want to accept the terms of the settlement agreement then you should confirm this to your employer and then take legal advice from a solicitor on the terms and effect of the settlement agreement. Once you have done so you can can formally accept the terms of the settlement agreement by signing it off.

Who can I talk to about the settlement agreement?

As we mention above, talk to whoever you think can offer you good advice on your situation: your family, your friends, and expert lawyers.

The only people that you should not talk to about the settlement agreement whilst you are considering whether to accept it are workplace colleagues – if your employer finds out that you are discussing the terms of your settlement agreement with your colleagues then it could have adverse consequences for whether they will keep the settlement agreement offer open.