A settlement agreement, as explained in previous blogs, is a method of ending the employment relationship and settling claims.  They are usually used by employers to avoid having to follow long, arduous and difficult legal processes.  However, they have advantages for employees too. The main advantage is usually that your employer will offer you a financial incentive to leave, by offering more money than you would be entitled to if they followed the ‘open’ process (be it a disciplinary, performance management, redundancy or other consultation procedure).

Employees cannot be forced to accept a settlement agreement, and should only do so if it is the right thing for them.  To that end, the first question I ask most of my clients is “are you happy with the amount you have been offered?”.  More often than not, the reply I receive is “I don’t know, what would a good settlement be?”.  Unfortunately, there is no one size fits all answer to that, and ultimately only you can know if the settlement is a good one. To provide you with some guidance, here are some questions that you should be asking yourself:

1. How many weeks/months’ salary does the settlement equate to (after tax)?  The first thing is to put the figure in perspective.  It may look good on paper, but if you would run out of money within a few weeks, it may not be the gift horse it first appeared to be.

2. How long is it going to take me to find another job?  Here there are a number of ‘sub-questions’ which will impact the answer, such as:

   1. Is my industry very specialised? The more specialised your role, the harder it will be to find an alternative.

   2. Am I paid more than the industry average where I am? If the answer is ‘yes’ consider the possibility that you may have to take a pay cut in your next role and it may take some time to get back to your current earning level.

   3. Am I going to need to retrain? Is it going to be at my own cost?

   4. What is the job market/economy like for my industry?

   5. Are there particular ‘hiring points’ in the year (e.g. for teachers)? How far away are those?

   6. Are there any circumstances which would make finding a job harder or otherwise disadvantage me?  For example, pregnant women and those very close to retirement age may not only be disadvantaged in the job market but may also lose crucial benefits by leaving their role, such as maternity pay or pension benefits.

3. What is the alternative to the settlement agreement? How long would it take for the company to carry out the alternative? For example, if the alternative is a (genuine) redundancy, that process could be concluded very quickly – usually within a month. You would therefore be on the job market anyway in a months’ time, but without the additional payment under the settlement agreement.  However, if the alternative is a performance improvement programme, this could reasonably take 6 months (during which time you could look for another job) so if the settlement agreement does not equate to 6 months’ pay, you might be better off ‘sticking it out’.

4. What claims do I have and what would they be worth if I pursued in them in an Employment Tribunal?  Here you will likely need some advice (that’s where we come in!).  You have to take professional advice on a settlement agreement in order for it to be valid and your solicitor can help you to assess the claims that you have and their value if you pursued them.  They can also advise you on the costs and funding for such claims to help you assess if you might be better off bringing your claims, and help you use this information to negotiate your settlement agreement where appropriate.

Aside from the above considerations, which are purely financial, there will undoubtedly be emotional considerations.  For example, it is easy to suggest that sticking it out in your role and undergoing a performance improvement plan is a good choice if you would be financially better off as a result, however, how would feel doing that? It is likely to make for an extremely awkward and uncomfortable 6 months, and ultimately only you can assess whether that is what you want to do.  Additionally, whilst you might get slightly more in damages at an Employment Tribunal, that process could take 18 months, and do you still want to be dealing with this in 18 months time? A good solicitor will help guide you through this process and assist you in reaching the decision which is best for you.

Should you have any queries about the issues raised in this article, or on any employment related matter, please contact our expert Arvin Sandhu by email or on 01494 893 542.