Tips for reaching agreement on settlement agreements

17th April 2023

A settlement agreement can provide a useful way for an employer and an employee to part ways on agreed terms and provide a degree of certainty. Often once the decision has been made to part ways using this approach there is naturally a desire to conclude the process promptly. Below are some tips on ways to speed up the process:

Tip 1 – Agree the financial package first

This is often the aspect of the deal that the employee cares about the most. If this package is not agreed before the employee meets with their solicitor, it can result in the majority of the negotiation being based on the financial terms. Naturally, where this negotiation takes place with a solicitor, this increases the employee’s legal costs and may result in the employee being more concerned about negotiating a higher financial package (which can impact on timescales).

It is also helpful to be clear on the final amounts of all aspects of the financial package. For example, if there will be a bonus or commission paid, the employee will want to know how much this will be. If the final figure can’t be confirmed yet, the employee may decide to delay signing until this figure is confirmed.

Tip 2 – Consider any specific terms

You may have a standard settlement agreement template that you usually work from. However, all settlement agreements can be tailored and amended to the situation. It is important to consider any specific concerns or circumstances that can be covered off with bespoke legal drafting. For example, it may be important to have an obligation on the employee to carry out a comprehensive handover with specific individuals before the termination date. Drafting can be added to reflect the importance of this obligation being complied with.

Tip 3 – Consider extras to help to sweeten the deal

When reaching agreement is particularly important to the company there are a number of options that may help to make the total package more appealing. For example, extended cover for private medical insurance (you will need to ensure this is authorised by the insurer and there is careful drafting to cover this entitlement), outplacement counselling to provide guidance and training to the employee and continued use of a company car. However, it is important to check the correct tax treatment of each benefit and accurately reflect this in the settlement agreement. It is also important to be clear on the tax treatment of all payments being made under the settlement agreement.

Tip 4 – Allow enough time to meet your internal deadline

For various reasons there may be deadlines that the company needs to meet in respect to signing of the settlement agreement. Although in theory the process could be relatively quick. To be valid, the employee must receive independent legal advice on the terms and effect of the settlement agreement and their ability to bring a claim. Often, once employees review the settlement agreement with their solicitor, they will want to negotiate at least some aspect of the terms. Negotiation can be lengthy particularly in respect to more senior employees.

Tip 5 – Arrangements for signing

The parties may not reach agreement on the terms until very close to the company’s deadline. Often the fastest way to arrange signing is to make use of electronic signing software, which allows both parties to sign and promptly receive a fully signed copy. However, this is dependent on at least one party having the software. An additional approach is to sign in counterpart. This means each party will sign its own copy and together both copies will constitute the fully signed agreement. It is recommended to ensure the settlement agreement includes specific provision to allow for this approach. Further, it is helpful to ensure the relevant authorised signatories will in fact be ready to sign in time.

The Cardiff Employment and Immigration team are highly experienced in drafting and negotiating settlement agreements, please get in contact with the team if you require any legal support.

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