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Settlement Agreements
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Settlement Agreement Lawyers Glasgow

Relations at work can change overnight, or deteriorate over a longer period. 

But either way, they will often come a point when the employer or the employee,  or both, want to look at alternatives to continuing to work together. That’s where Settlement Agreements come into play. 

Settlement Agreements have similarities with separation agreements in a divorce – they mark a point legally where two sides are irreconcilable, and want to move on, but also recognise that there will be financial repercussions for both.

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Settlement Agreement Lawyers Glasgow

Why Would an Employee Want a Settlement Agreement?

There has to be a financial incentive for the employee. Usually, there is a “lump sum” paid, made up of the contractual notice, the equivalent of redundancy payment, and a financial enhancement or “top up” by the employer. The first £30,000 of the lump sum should also be paid tax-free, whereas if it was paid in salary it would be taxed in the usual way, which is also an incentive.

While the pay-out is the main benefit, there can also be other non-cash offers made, such as continuing use of vehicles, private healthcare cover, or a reference in complimentary terms for a future employer. The agreement makes the payment legally-enforceable.

Professional Regulation

What Is an Employee Asked to Give Up? 

Usually, the right to bring a claim at the Employment Tribunal against the employer is what is being “settled”. That means that the employee can’t bring any claim that he or she was treated unfairly, such as discrimination, or was owed any money, such as outstanding wages or holiday pay.

It’s obviously therefore important to have all the outstanding financial matters discussed with someone qualified to advise before the agreement is signed, because the employer won’t be able to take any legal steps later legally if they feel disgruntled. In cases where an employee has already been dismissed, or “let go” in some shape or form, Settlement Agreements can also come into play and the employee will be asked to forego the right to pursue a claim for unfair dismissal.

In this situation, Acas may well become involved, and because there are important legal deadlines, specialist advice should always be taken.

Why Would an Employer Want One? 

Business owners often want to make changes, but are fearful of doing anything which will result in a claim being made to the Employment Tribunal. It may be that they feel a long-serving employee is not adapting to changes in the industry, or simply that they are worried about a downturn in work coming in.

There are established paths down which a perceived “poor performer” can be taken, but these can be full of pitfalls for the uninitiated. Similarly, while there is a process that can be undergone to make employees redundant, it’s a cumbersome procedure requiring documentation which, even if done correctly, could still be subject to the detailed scrutiny with evidence having to be given under oath at an Employment Tribunal.

Factor in the emotional upheaval, the disruption to the business and the cost of obtaining legal advice on all of this, it’s not a surprise that many business owners often put off implementing changes, in the hope things will improve. While they are not a magic wand, Settlement Agreements are certainly quicker and easier than a detailed, protracted process ending in dismissal.

They are also suited to scenarios where they have been long-running grievances or other issues which have damaged relations between parties.


Settlement Agreements FAQs

As well as pay the lump sum, they will require to take advice on the terms the Settlement Agreement, carry out any negotiations required before this is signed, and meet the employee’s reasonable legal costs for getting advice on its terms (usually £250-£300 plus VAT).

Any agreement which does not contain the essential elements that make it a recognised Settlement Agreement will not be legally binding on either party. The essential elements are:

  1. The employee must have advice from an independent legal adviser, normally a Solicitor. Without independent legal advice, the agreement is invalid.
  2. The agreement itself must relate to the matter in dispute. Usually, this is the fact that the employer wishes to bring to an end the employee’s contract of employment. The agreement must state this, although the reasons for the employment coming to an end do not have to be gone into, and it can be described as “mutual” rather than a sacking or dismissal.
  3. The Agreement must be signed by both the employee and employer, and normally the solicitor who has advised the employee signs the agreement as well.

In giving advice about the Agreement to the employee, the adviser will need information about how matters have arrived at this point. The employee may feels he has done little or nothing wrong, but the adviser will look at what the employee would be likely to be awarded if they brought a claim at the Employment Tribunal, rather than sign the Agreement. There are strict timescales about how long the employee has to bring a claim and if it’s left too late, the claim can run out of time.

There are also now substantial fees which have to be paid before a claim can be brought, although these can be avoided for those unemployed or on a low income. The legal adviser should act entirely independently of the employer, and may be able to take a role in negotiating various matters, such as the lump sum or the wording of the reference.

The agreement usually insists that the settlement terms remain confidential, other than between the employee and his immediate family and legal adviser, with the lump sum having to be repaid if this is breached. Usually the agreement will also ask that both parties agree not to make any derogatory statements about the other side after they leave.

With the growth of social media, this is something that employers are enforcing more often, and in some cases have withheld payment due to comments made on Facebook, Twitter, etc. by employees speaking about the circumstances of their departure.

Sometimes employers will also wish the employer to agree to restrictions on where he or she will work after the employment has ended, in exchange for the lump sum. This is called a Restrictive Covenant. The advice given by the Solicitor would include an explanation of what conditions this will impose on the employee, and for how long.

Many employees will already have these restrictions in their contracts of employment, which will specify that for a certain number of months, the employee cannot take on similar work. The employer may be prepared to release the employee from these restrictions as part of the Settlement Agreement, and this is often part of the negotiation carried out by the adviser.

They were formerly known as compromise agreements until the law changed in 2013, when new guidance by ACAS came into force about how they should work. This guidance includes a minimum period of 10 days required between the terms of the Settlement Agreement being proposed by the employer and the employment coming to an end. Employers are also not allowed to put pressure on employees to sign the agreements.

The Glasgow Law Practice acts regularly for both employees and employers in providing advice on Settlement Agreements. We are also able to provide Settlement Agreements tailored to suit the particular circumstances of the employer and employee. We offer fixed rate packages so you know exactly how much you will pay at the outset. Contact our employment solicitor Louise Bain.