Employee Settlement Agreements in Scotland: What Employees Need to Know
Settlement Agreements in Scotland: A Guide for Employees
If your employer has offered you a settlement agreement, you may have questions about what it means, whether you should sign it and whether you are receiving a fair deal.
A settlement agreement is a legally binding agreement between an employer and an employee which usually brings the employment relationship to an end in return for an agreed financial payment and other agreed terms.
For employees, a settlement agreement can provide certainty and avoid the stress and uncertainty of a workplace dispute or potential employment tribunal claim. However, it is important not to sign an agreement without taking independent legal advice.
What Is a Settlement Agreement?
A settlement agreement is a formal written agreement between an employer and employee.
It usually records that the employee agrees not to pursue certain legal claims against the employer in exchange for an agreed package, which may include compensation.
Settlement agreements can cover matters such as:
• Termination of employment.
• A financial settlement payment.
• Notice pay.
• Payment for accrued holiday.
• References.
• Confidentiality obligations.
• Return of company property.
• Post-termination restrictions.
• The handling of announcements about the employee leaving.
The terms will depend on the circumstances and the agreement reached between the parties.
Why Do Employers Offer Settlement Agreements?
Employers may offer settlement agreements for a variety of reasons.
Common situations include:
• Redundancy situations.
• Workplace disputes.
• Performance concerns.
• Grievances.
• Difficult working relationships.
• Changes within the organisation.
• A desire to avoid lengthy employment tribunal proceedings.
For employers, settlement agreements provide certainty and reduce the risk of future claims.
For employees, they can provide an opportunity to negotiate an agreed exit package rather than leaving matters uncertain.
Do I Have to Accept a Settlement Agreement?
No.
An employee does not have to accept a settlement agreement or agree to the terms offered by their employer.
A settlement agreement is a negotiation. The terms can often be discussed and, where appropriate, improved before anything is signed.
You should not feel pressured to sign immediately. It is important that you understand your legal position and the consequences of signing before making a decision.
Do I Need a Solicitor for a Settlement Agreement?
Yes, independent legal advice is required for a settlement agreement to be legally binding.
An employee must receive advice from an appropriate independent adviser, such as a qualified solicitor, about:
• The terms of the agreement.
• The effect of signing it.
• The claims being waived.
• Whether they have potential legal claims against their employer.
• Whether the agreement is in their interests.
The employer will usually contribute towards the employee's legal fees for obtaining this advice.
Are Settlement Agreements Legally Binding?
Yes, provided certain legal requirements are met.
For a settlement agreement to be valid:
• It must be in writing.
• It must relate to specific legal claims.
• The employee must receive independent legal advice.
• The adviser must have the appropriate qualifications and insurance.
• The agreement must identify the adviser.
Once properly signed, a settlement agreement is legally binding and can prevent an employee from bringing certain claims against their employer.
Can I Negotiate a Better Settlement Agreement?
Sometimes, yes.
The first offer from an employer is not necessarily the final offer.
Depending on the circumstances, negotiations may involve:
• Increasing the compensation payment.
• Agreeing an earlier termination date.
• Improving the wording of a reference.
• Adjusting confidentiality provisions.
• Clarifying post-termination restrictions.
• Agreeing how the departure will be communicated.
The strength of your negotiating position will depend on factors such as your length of service, your contractual rights and whether you may have potential claims against your employer.
What Payment Can I Expect From a Settlement Agreement?
There is no standard settlement agreement payment.
The amount offered depends on factors including:
• Your salary and benefits.
• Length of service.
• Notice entitlement.
• Unused holiday entitlement.
• The circumstances of your departure.
• The potential value of any employment claims.
A solicitor can help you assess whether the offer reflects your circumstances and whether further negotiation may be appropriate.
What Is a Protected Conversation?
You may hear the term "protected conversation" when an employer raises the possibility of a settlement agreement.
A protected conversation is intended to allow an employer and employee to discuss ending employment without those discussions being automatically referred to in an unfair dismissal claim.
However, the protection is not unlimited and does not apply in every situation.
The circumstances surrounding the conversation, the way it was conducted and the type of claim involved can all be important.
What Happens If I Refuse to Sign?
If you decide not to accept a settlement agreement, your employment continues unless your employer takes another lawful step.
Depending on the circumstances, this may involve continuing discussions, following a workplace process or considering other options.
A solicitor can advise you on the risks and possible outcomes before you make a decision.
What Should I Check Before Signing a Settlement Agreement?
Before signing, you should carefully consider:
• Whether the financial offer is reasonable.
• Which legal claims you are agreeing not to pursue.
• Whether your notice pay is included.
• How holiday pay is dealt with.
• Whether the reference is satisfactory.
• Any restrictions on future employment.
• Confidentiality obligations.
• Tax treatment of payments.
A settlement agreement can have long-term consequences, so it is important to understand exactly what you are agreeing to.
Frequently Asked Questions
How long do I have to consider a settlement agreement?
There is no fixed statutory deadline, but employees should be given a reasonable opportunity to consider the offer and obtain legal advice before signing.
Can I refuse a settlement agreement?
Yes. A settlement agreement is voluntary and you do not have to accept the terms offered.
Can I negotiate a settlement agreement?
Yes. Settlement agreements are often negotiated, and employees may be able to improve the terms depending on their circumstances.
Is a settlement agreement the same as redundancy?
No. A settlement agreement is a voluntary agreement between employer and employee. Redundancy is a separate legal process, although settlement agreements are sometimes used in redundancy situations.
How much will a solicitor charge to review a settlement agreement?
Many employers contribute a fixed amount towards the employee's legal fees. The amount varies depending on the complexity of the agreement and the advice required.
Why Choose Seaward Law?
Receiving a settlement agreement can be stressful, particularly when it involves the end of your employment.
We employees throughout Scotland on settlement agreements, helping them understand their rights, assess the terms offered and negotiate where appropriate.
We provide clear, practical advice tailored to your circumstances so that you can make an informed decision about your future.