Who it's for
- Employers agreeing an exit with an employee
- Employees who have been offered a settlement and want to understand what a typical agreement contains
- Both sides should expect the employee's adviser to review and possibly amend it
What's included
- About this agreement — including the independent legal advice requirement
- Part 1 — Parties and employment details
- Part 2 — Termination payments and benefits: salary, PILON, ex-gratia payment, expenses, pension options, benefits, share options and a total package table
- Part 3 — Waiver of claims with the claims that cannot be waived
- Part 4 — Obligations: confidentiality, return of property, restrictions, reference (agreed or factual), announcement, warranties
- Part 5 — Independent legal advice and contribution to costs
- Part 6 — General provisions, Part 7 — Execution and the adviser's certificate
Independent advice is required: the employee must take advice from a relevant independent adviser (usually a solicitor) for the agreement to settle statutory claims. The adviser may suggest changes.
Key points covered
- Only binding on the employee's statutory claims if they have received independent advice from a relevant adviser (Employment Rights Act 1996 s.203)
- Unknown personal injury claims, accrued pension rights and claims to enforce the agreement are excluded from the waiver
- First £30,000 of a genuine ex-gratia termination payment can be free of income tax; PILON is taxed as earnings
- Choice of agreed or factual reference
- Adviser's certificate covering qualification, independence and insurance
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Questions
Does the employee need a solicitor?
Yes. For the waiver of statutory claims to be binding, the employee must receive independent advice from a relevant independent adviser, who signs the certificate. Employers often contribute to the cost.
Can the confidentiality clause stop someone reporting wrongdoing?
No. The law protects whistleblowing and certain disclosures by victims of crime whatever a confidentiality clause says. Check the confidentiality wording with the adviser before signing.
Is the payment tax-free?
A genuine ex-gratia termination payment can be free of income tax up to £30,000. Salary, holiday pay and PILON are taxed as normal. Check the position with HMRC or an accountant.
Can I use it in Scotland?
It is drafted under the law of England and Wales.
Settlement Agreement
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