What is a Settlement

A Settlement Agreement is a formal agreement between an employer and an employee dealing with the settlement of claims that the employee may have arising out of his/her employment or its termination. Usually an employee accepts a sum of money in return for agreeing not to bring certain legal claims against the employer.

What is a Compromise Agreement?

‘Compromise Agreement’ is the old name for a Settlement Agreement. The name-change took place in July 2012 when new laws were introduced making it easier for employers to make settlement offers.

Is a settlement agreement payment agreement tax-free?

The tax position depends on the nature of the payments made under the settlement agreement.

Wages, holiday pay, bonuses, commission, & contractual payments – are all subject to usual deductions for income tax and national insurance.

Termination Payments, compensation, redundancy pay and/or ex-gratia payments

Generally the first £30,000 of compensation for loss of employment is not subject to tax or employees’ National Insurance contributions. Payments made over £30,000 are subject to tax. IMPORTANT NOTE: The law in relation to post-employment notice pay and tax liabilities has changed. This part of our guidance is under review so please consult your solicitor and / or tax adviser about how this may affect you.

Tax liability if you work your notice period

If you work your notice period under a settlement agreement the money you earn during notice is taxable as wages, as normal.

Payments in lieu of notice

Currently, depending on your employment contract and employer’s practices, a payment in lieu of notice may or may not taxable, depending on whether it is contractual or compensatory. If your employer gives your employer a right to terminate and pay in lieu the risks of it being contractual increase.

From April 2018 all payments in lieu of notice taxable (contractual and compensatory) are expected to be taxable.

What is post-employment notice pay?

From April 2018 it is expected that all termination payments will be taxable, up to the value of any notice pay, unless you have served notice. In effect the argument about whether the termination payment is contractual or compensatory will be dead because both will be treated as taxable as post-employment notice pay.

Is a payment for outplacement under a settlement agreement taxable?

A qualifying payment in relation to outplacement is capable of being paid without incurring tax liabilities.

Settlement Agreement and  retirement

Retirement payments are usually taxable.

Why do we need Settlement Agreements?

Settlement Agreements are used to resolve employment disputes and/or end the employment relationship on agreed terms. They are an effective way of preventing or resolving employment disputes and provide certainty to both parties.

Once signed, an employee will be prevented from bringing employment claims.

Is the settlement offer fair (and should I accept)?

That depends on the offer, the strength of any claims, how long you’ve been employed and factors personal to you. Read our guide: Five things you need to think about before accepting a settlement agreement offer.

In what situations are Settlement Agreements used?

Settlement Agreements are used in many employment situations, including:

Redundancy:

Settlement Agreements are often used in redundancy scenarios, where the employer offers to pay the employee more than the basic statutory redundancy pay entitlement. In exchange for paying more, the employer may require the employee to sign a settlement agreement.

Disciplinary:

The employer may not be happy with the employee’s standard of work. Rather than go through a formal performance improvement plan / procedure, the employer may decide to offer the employee an alternative to leave earlier in the procedure and receive a settlement payment under a settlement agreement.

Sickness / Incapability

If an employee is not capable of work because of illness or a lack of skill or experience, one option may be to agree to the employee leaving under a settlement agreement. Sometimes, both parties would prefer to agree an earlier amicable settlement rather than go through a long drawn out capability procedure that might end in dismissal.

Work relationship breakdown

Sometime the work relationship breaks down between the employer and employee, or the employee and colleagues. The parties may prefer to agree an amicable parting, where the employee receives a severance / termination payment.

Employee Grievance

The employee may have grievances and potential claims against the employer for the way she/he has been treated at work. Rather than bring employment claims, an agreement may be reached and recorded in a settlement agreement.

I’m happy with the settlement offer and need a solicitor to sign-off. What next?

If the settlement agreement is ready to sign you can go for our fast solicitor advice service from our solicitors. It can all be done by telephone and email. The solicitor will advise you on the terms and effect of the agreement and send a legal adviser certificate to your employer. You will probably find the template certificate in a schedule (at the back of the Settlement Agreement).

How much does this legal advice cost?

If you’re happy with the deal and just need a solicitor to sign-off the agreement, many of the firms in our ‘find a solicitor’ directory will agree to only charge whatever your employer agrees to contribute towards your legal fees. Your solicitor will then invoice your employer directly when the agreement is signed-off.

Negotiating a Settlement Agreement

When employees are offered a Settlement Agreement, they should give careful consideration to what they want to achieve by signing such an agreement.

I’m not happy with the financial terms

Some employees are not satisfied with the financial deal and/or the terms of the agreement and will instruct their solicitor to negotiate on one or both fronts. The ability to negotiate will very much depend on the circumstances and strength of the individual’s case. The stronger the legal basis for a claim, the more likely it is that employers will be receptive to negotiations to increase the compensation and amend terms in the employee’s favour.

Changes to the Settlement Agreement wording

You may want to make changes to the Settlement Agreement wording to protect you. For example:

• Adding a clause to require your employer to provide a reasonable job reference to a new employer;
• making sure all the payments, monies and benefits you are entitled to are covered (accrued salary, accrued holidays, bonuses, commission payments, shares, SAYE, private health cover, company car or car allowance). This is important because usually a settlement agreement will be drafted to be the entire agreement, meaning any payments or benefits not covered in the agreement will be lost;
• an agreed internal or external announcement to colleagues and customers;
• changes to the clauses dealing with tax (known as a tax indemnity);
• amending or removing post-termination restrictions that may make it difficult for you secure new work; and / or
• deleting clauses that are unreasonable / to remove or minimize risk.

What is the effect of a entering into a Settlement Agreement?

By entering into a valid Settlement Agreement an employee agrees to give up certain legal rights usually in return for a severance payment or package. The main effect of the agreement is that an employment tribunal will no longer be able to hear the claims listed in the agreement and an employee will be precluded from bringing these claims. Depending on the terms of the agreement, it may also prevent an employee from bringing any contractual claims and/or common law claims.

Why do I need advice from a solicitor?

if you sign the Settlement Agreement you will not be able to bring a claim in the employment tribunal or courts. It’s therefore really important that you get advice so you know what claims you have, how valuable they are, so you can make an informed decision about whether to accept the settlement agreement offer.

Your employer also has an interest in you obtaining advice from a solicitor because otherwise the written agreement (even if signed by you) will not legally prevent you from bringing statutory employment claims, for example unfair dismissal or discrimination.

Who pays for the employee’s solicitor?

It is normal practice for the employer to make a contribution towards the cost. The solicitor will send the invoice directly to your employer, after the Settlement Agreement is concluded. An employer’s contribution may vary. Usually an employer will offer between £250 and £750 excluding VAT. But the contribution can be more in some instances. Many of the solicitors in our ‘find a solicitor’ directory will agree to limit their charges to the employer’s contribution, so you don’t have anything to pay. But check with the solicitor.

Legal requirements of a Settlement Agreement

To protect employees who may be unaware of their legal rights, the law states that Settlement Agreements are not legally enforceable unless they meet certain minimum requirements:

• The agreement must be in writing.
• The agreement must relate to ‘particular proceedings’ i.e particular complaints that the employee may have.
• The employee must identify a relevant independent adviser from whom the employee has received advice as to the terms and effect of the proposed agreement and in particular its effect on the employee’s ability to pursue their rights before an employment tribunal.
• The adviser must be covered by professional indemnity insurance.
• The agreement must state that the legal conditions regulating settlement agreements are satisfied.

If the agreement does not comply with these minimum legal requirements, it will not be valid and an employee will still be able pursue a claim against their employer, although he/she will probably have to repay any monies received, or they will be deducted from any compensation the employee is awarded.

What terms might a Settlement Agreement include?

The terms included in a Settlement Agreement will vary depending on the circumstances of the particular case. However, it is common for Settlement Agreements to contain clauses dealing with the following:

• The date employment terminated
• List of claims settled
• Settlement package including when payment will be made and by what method
• Parties understanding of the tax position
• Tax indemnity from the employee
• Reminder of any restrictive covenants or confidentiality obligations in the contract
• Confidentiality about the fact, content and circumstances of the agreement
• Obligations on the employee or both parties not to make or publish any derogatory comments
• An agreed reference
• Repayment provisions for breach by the employee of the settlement agreement
• Employer contribution to the cost of obtaining legal advice on the terms of the agreement
• Arrangements on termination

Guide:  The usual terms you find in a settlement agreement (explained)

Ask an Expert: Am I entitled to a job reference?

Are there any claims that cannot be settled by a Settlement Agreement?

Not all claims can be settled by means of a Settlement Agreement, for example the right to statutory maternity, paternity and adoption pay and claims under the Agency Workers Regulations 2010.  It is also usual for an agreement not to compromise an employee’s accrued pension right. There is usually a clause dealing with personal injury claims stating either that the agreement does not affect any personal injury claim that the employee may have or a clause signing away the employee’s right to pursue claims for injuries of which he/she is already aware.

Resource: A list of statutory claims that cannot be settled under a settlement agreement.

Is a Settlement Agreement legally binding?

The agreement is legally binding when it meets the legal requirements as identified above and is signed by both parties.

Other methods of settling claims and/or ending the employment relationship

Where an Acas conciliation officer assists in the negotiation of the settlement of an employment tribunal claim (or potential claim), a COT3 agreement is used to record the terms of settlement. A COT3 agreement is a much simpler straightforward agreement that does not have to adhere to the formalities of a settlement agreement because it is negotiated with the assistance of an Acas conciliation officer.

Can we help?

For solicitor advice, please call 0800 088 4021.

Calculating your settlement can be tricky because every situation is different. However, this ‘Calculate your Settlement Guide’ (written by a specialist employment solicitor) offers expert, actionable guidance on calculating a settlement, whether you are being made redundant, you’re unfit to work, you are facing a disciplinary or a performance improvement procedure. Ready to start? Let’s do the maths …

UPDATED MAY 2022

How to Calculate Your Settlement Agreement

Settlement Agreement Calculator Step by Step Guide

1. Get your paperwork together

Get hold of all of the relevant paperwork so you can calculate your settlement. See the checklist below!

2. Settlement Agreement Document Checklist

• Last three months payslips.
• Employment Contract.
• Form P60 (this is the tax summary your employer gives you at the end of each tax year).
• Form P11D – this will show the taxable value of any contractual benefits.
• Bonus scheme or rules.
• Commission Scheme rules.
• Pension information.
• Share options, or Save as You Earn Scheme.
• Work/corporate gym membership terms.
• Redundancy Policy (this may contain details about an enhanced redundancy pay).
• Outplacement scheme (if your employer has this it may provide free or subsidised career support to help you find your next role).
• Ill-health benefits (if your settlement offer comes about because you are unfit to work).
• Any other contractual benefits.
• Any other benefits?

Looking to negotiate a better deal? Read our guide: How to Negotiate a Settlement Agreement.

3. Know your numbers!

Once you’ve got everything together you’re in a great place to work out the values of your pay and benefits, on a gross and net basis (i.e. before and after tax).

4. Double check and recalculate the settlement numbers.

Check your employer’s figures against yours.

Go direct to payroll if you need to and the pension provider. But be careful not to breach any instructions your employer has given, for example not to speak to anyone else. If that is the case, get permission first to be safe.

5. Check your notice entitlement.

Some employers may just look at the employment contract and go off that. They may be mistaken about your start date.

Check your start date and work out your statutory minimum notice entitlement – which is one week for each completed year up to a maximum of 12.

Then check your written employment contract, if you have one, to see what that says. If it’s more than the statutory minimum, that’s your entitlement.

Unless you’re guilty of a serious act of misconduct that would entitle your employer to dismiss you without notice, the first thing to do is check you’re getting paid your full notice.

Your employer may ask you to work your notice. If you’d prefer to leave sooner, this may be a negotiating point.

Summary: You should check (1) when you started (2) how many complete years services you’ve got (3) what your written employment contract says, if you’ve got one (4) when notice was properly served. If the contract says notice must be served in writing, and you were only told verbally, you may be able to argue notice has not yet been served.

6. Don’t forget the benefits you’ve lost (or will lose) if your employer pays in lieu.

If your employer is ending your employment without giving you notice (or full notice) and instead paying you in lieu, tax and national insurance should be deducted (like normal pay).

However, make you you find out whether you are getting to keep your contractual benefits or if you are being paid a sum to compensate you for not getting them during what would have been your notice.

Add up your benefits, by looking at your last Form P11D, or check with payroll. Extras like pension contributions, car allowances, private health cover, gym membership can significantly add up. Try and secure their continuation or ask for an agreed payment equal to the value over the notice period.

Tip: Some employment contracts may give the employer a right to end your employment without notice and only pay a payment in lieu of notice based on your basic pay.

7. Don’t forget holiday pay

You are entitled to be paid any holidays you’ve accrued but not taken, up to the termination date.

The minimum entitlement is 5.6 weeks a year. If you work 5 days a week that’s 28 days (inclusive of bank holidays). But you may be contractually entitled to more – check your employment contract.

Employee Tip: If you’ve been prevented from taking your holidays by your employer, or you’ve been on long-term sick leave, you will likely be able to claim back-dated holidays, before the current holiday year, even if your employment contract says otherwise.

Calculate your entitlement in days (i.e. accrued but untaken holidays) and speak to your solicitor about how far you may be able to backdate.

8. Redundancy

Statutory Redundancy Pay Calculator

If you’re being made redundant, and you have two or more years’ service, you are entitled to at least statutory minimum redundancy payment.

The exact figure you are entitled to will depend on your length of service (in complete years), your age and weekly gross pay.

Important note: A statutory redundancy entitlement is payable in addition to your contractual or statutory minimum notice entitlement.

Employee tip: You can use the Government Redundancy Calculator.

Contractual Redundancy Pay

If your employer has an enhanced redundancy scheme you should be able to calculate the amount you will receive applying the scheme’s formula. If you’re not sure if there is enhanced scheme, or you think your employer have offered other employees an enhancement but not you, see if you can get some advice or intelligence from the trade union about custom and practice regarding redundancy payments.

Employee Tip: Check your Staff Handbook for any redundancy policy.

9. Sickness and Ill-health Settlement Agreement Calculator

Permanent Health Insurance

If you’ve been offered a settlement because you’ve been sick and unable to work, check whether you’re entitled to Permanent Health Insurance (also known as income protection insurance or ‘PHI’). This kind of insurance is sometimes part of the benefits package you’re entitled to. The purpose of PHI is to provide an income while you are unable to work. The terms of PHI policies vary. Some say you need to be unfit to do your job, others say you need to be unfit to any work. They typically provide income protection at between 50% and 75% of your salary (and are intended for situations where an employee is unlikely to be able to work for a long time).

If you’ve been offered a settlement agreement you may be better off applying for PHI, if you are likely to be unfit to work for a while and you meet the policy requirements. PHI policies will cease to provide any benefits once someone ceases to be an employee. Pursing PHI and accepting a termination payment under a settlement agreement will normally be mutually exclusive.

Employee Tip: Speak to your employment solicitor about your options and get hold of the insurance policy wording.

Critical illness insurance cover and settlement agreements

Some employers provide critical illness cover. Generally, it will involve a lump sum payment, if the employee is diagnosed with a serious condition, such as cancer. If you’ve got this benefit get hold of the policy and speak to the insurer / broker.

It has been known for employers to offer a settlement agreement without informing the employee they could have made a claim for critical illness benefits. Once your employment has ended under the settlement agreement you will usually lose any entitlement to claim!

Employee Tip: If you’ve got critical illness speak to the insurer about whether you’re likely to be successful based on your health condition and find how much you could get, and when and how you need to make a claim.  You can learn more about this cover here.

Ill-health retirement and ill-health pension benefits

Check whether you have these. Sometimes they are attached to your pension. Obtain the relevant policy or benefit wording. Much like PHI, these benefits can be extremely valuable and should not be given up by signing a settlement agreement without carefully weighing up the pros and cons. But be realistic as well. If you’re illness is not likely to be long-term it maybe you won’t fulfil the criteria to claim these benefits.

10. Poor Performance – Settlement Agreement Calculator

Sometimes, rather than go through a performance management procedure, or performance improvement plan (‘PIP’), your employer (or you) may decide to offer a settlement agreement. If that happens the value of your settlement may come down to:

• Your notice entitlement

This is because even if you are dismissed for poor performance, unless you have been grossly negligent or guilty of gross misconduct, you will still be entitled to your contractual notice.

• How long the process will take before your employer can dismiss you fairly?

If you have under two years’ service, your employer may decide to just serve notice or terminate your employment immediately and pay in lieu. An employer may do this because an employee needs two years’ service to bring a claim for ordinary unfair dismissal.

If you have accrued a right not to be unfairly dismissed the employer must follow a fair procedure if it wants to avoid losing an unfair dismissal claim. That would usually require an employer to give an employee reasonable time to improve, and issue at least a first written warning, then a final warning, before dismissing you. Typically, that could take a few months to complete.

• Whether there is an underlying health condition that might be a disability.

If there is, your employer will have added risks if it dismisses you for poor performance related to your disability. It will probably need to get medical evidence. If the disadvantage your disability causes could be reduced by making reasonable changes, often referred to as ‘reasonable adjustments’ not doing so would amount to disability discrimination. In these situations, your employer may be willing to increase the settlement to get the deal done, knowing otherwise it would have disability risks to contend with.

• Your employer’s attitude to settlement payments versus getting on with the performance procedure.

Employers are unlikely to overpay. If it is already incurring the cost of employing Human Resource Managers, it may prefer to performance manage you and see what happens: you either improve, or you don’t, in which case it dismisses you and pays you notice pay only.

Your position and attitude to settlement

Employers will often assess the individual employee. If you’ve got another job, are bound to get something quickly, showing signs of wanting ‘out’, or you’ve made the first move and approached your employer, the chance of getting a higher settlement might diminish.

If your employer has a track record for offering deals, then a quick early conversation may work in your favour even if you make the first approach. This ties back to one of the points we made in our Settlement Agreement Negotiations Guide; think about who you are negotiating with carefully, and pick the best person to negotiate with if you do have the choice.

11. Calculate the Compromise

Settlement Agreements were previously called Compromise Agreements. The name change occurred in July 2013 – and although the new term is perhaps clearer – after all, the purpose of is to settle claims, there was a lot to be said for this old name. It reminded the parties that the spirit of doing a deal is to compromise, and that neither side is likely to get everything their way.

For the employee, there can be non-financial benefits to doing a deal, for example being released from post-termination restrictions, that might warrant taking less money, or fighting too hard.  You may even lose the deal if you fight too hard (although that is rare).

You may annoy your employer so much or fight so hard (and successfully) that you leave deep scars for the people the other side of the negotiation. That might not concern you but if you’d prefer to leave on amicable terms, pushing for every last pound may not be worth it if you damage the relationship with colleagues forever.

Factor in the chance that you may end up working with some of the same people in the future, as colleagues, or customers or suppliers. In some industries, the chance of meeting each other again might be better than not.

Conclusion

Ask yourself whether, factoring in financial and non-financial considerations, the financial deal is good enough to tide you over until you get another job, especially if you’re going to get outplacement support and you can secure an agreed reference as part of your settlement agreement. As they say, some things are worth more than money.

We hope you found this settlement agreement calculator guide helpful. If you have any tips or guides to help our readers, please get in touch. Thanks for reading!

Further reading

Ultimate Settlement Agreement Guide.

What happens if you apply for a job and you suspect you don’t get it because of discrimination? What is a valid basis for suspecting you’ve suffered discrimination and what evidence do you need?

1. No right to be treated fairly.

Generally speaking, an employer can decide who it offers a job to. If you get the job because your favorite colour is orange that might seem unfair to the candidate who prefers green. It’s not related to the role and an employer is going to struggle to rationally justify the decision. But the decision isn’t unlawful or discriminatory.

That’s because there’s no general legal right to be treated fairly when you apply for a job. Sounds harsh, but it’s true.

2. No right to feedback

Unsuccessful candidates have no legal right to feedback. So if you never hear how you got on, you can’t legally insist on a reply.

3. Discrimination is defined by reference to specific characteristics.

An employer will face a risk of a discrimination claim if it rejects a candidate because of a ‘protected characteristic’.

Under the Equality Act 2010 the following are Protected Characteristics:

• Race
• Sex
• Marriage and civil partnership
• Pregnancy
• Gender reassignment
• Disability
• Religion or Belief
• Sexual orientation
• age

4. The Discriminator

What was in the mind of the person that decided to reject you for the job? That is the key question an employment tribunal will need to answer.

But as we can’t (yet) read people’s minds the law works by drawing from wider evidence as to what was going on in the decision-makers mind head at the time they decided to reject you and offer the job to someone else.

So how do you prove the decision-maker is a discriminator?

5. Gathering Evidence

People who discriminate don’t tend to admit it, to themselves or to employment tribunals or their own company or the wider world.

The most obvious piece of evidence is something that was said or done that suggests a discriminatory mindset.

6. Make Notes

If something has been said during an interview that causes you concern, make a detailed note of the interview as you can. If possible, make a quick note during the interview itself, or soon after. Handwritten notes are fine.

Write as much down as you can – the exact words used, the comments, questions and answers. A transcript format works well:

Interviewer: Do you have a children?

You: Yes, I have a 4 year old girl and 6 year old boy.

Interviewer: Oh right, we have to work late sometimes. Would that be a problem?

If you have a concern, try and note down the whole interview, as best you can. That way you give the concerning comments context.

An employment lawyer will be able to analyse this evidence and advise you on the merits of a discrimination claim.

7. Seek feedback

Seek feedback on why you were unsuccessful. That might be on a phone call, so you guessed it, be ready to make more notes of the reasons given. And be prepared to ask questions. For example, if the employer says the other person had more experience, or qualifications, you should try and drill down into what that really means. What experience, what qualifications.

Remember, if your employer perceives you to be hostile there’s a good chance they will close down the follow-up / feedback process.

Tip: Structure and sequence your questions carefully in advance – be friendly, and positive in your tone. You are just looking for some pointers of where you could improve!

8. Successful candidate analysis

You may know who got the job. Some industries are pretty tight knit and word gets out, or you might see an update on the company website or LinkedIn. If you do, consider carefully whether the successful candidate appears (on paper) to be the better qualified person for the job.

Does the successful candidate’s LinkedIn profile have superior work experience and academic qualifications?

Tip: Online data changes and is deleted. Consider screen grabbing the evidence.

9. Take stock

Think carefully about everything that was said and done. It may be the feedback has satisfied you that the better candidate got the job, or that your ‘protected characteristic’ was not relevant or a factor in the decision to reject your application.

Remember that even if an interviewer has said something that you think might suggest discrimination occurred, it is open to the company to put forward evidence to challenge that claim, for example the successful candidate may have more experience and qualifications on paper.

10. Ask questions in writing.

If you still have concerns, and you feel the effort, stress and costs of pursuing a claim are worthwhile, consider following things up in writing with the employer, setting our your concerns in writing, and seeking a reply.

At this stage you are expressing concerns based on the evidence you have gathered. It is a chance for you to ask questions, more generally, about their recruitment exercise. You may ask about how many women are employed at the level of management your applied for, compared to men, for example.

The company may ignore your questions – as they are not required to answer them. But their failure to respond, or equivocal replies, won’t make them look good.

Tip: keep a record of all emails you send, and any phone calls. This could be valuable evidence should you bring an employment tribunal claim.

11. Consider making a request for disclosure of documents

There’s nothing stopping you asking for documents. For example, if the interviewer made notes, point that out and ask for copies. Ask for copies of any emails or record of decision-making processes with regard you your rejection.

You may also want to make a Subject Access Request. This is a procedure under the Data Protection Act 2018. It costs you nothing and involves you asking for personal data held about you. The business has to respond in a month.

12. Time-limits, ACAS and Employment Tribunals

There are strict time-limits to bring a claim in the employment tribunal, so don’t delay.

Usually you have three months (minus a day) from the act complained of, to bring a claim. But before you go to an employment tribunal you need to raise a claim via ACAS, through its Early Conciliation Scheme.

13. Settlement and Offers

You may be offered a sum of money to settle your claim. There are advantages to an early settlement deal. It allows you to move on without the costs, delay an risks of an employment tribunal claim.

IMPORTANT: We recommend you take urgent legal advice on the applicable time-limits for your case. The contents of this article do not amount to legal advice. You should consult a solicitor about your situation to obtain legal advice, without delay.

I am leaving my employment under a settlement agreement and it contains a clause which states that I will not say anything bad about my employer after the termination of my employment. Can they stop me doing this and what would happen if I spoke about them after I’ve signed the agreement? They can’t stop me telling the truth about them, can they?

1. Non-Derogatory Clauses are Standard Practice

Don’t think this clause has been drafted just with you in mind as it probably hasn’t.  It is very common for employers to include clauses in settlement agreements that require employees not to say anything bad or derogatory about the employer or its directors and other employees.

The employer will see it like this: You are being paid a sum of money to go away and settle your of the employment claims. You’ve received independent legal advice and gagging your from moaning about your complaints is part of the deal.

Employment solicitors call it managing reputational damage from an employment dispute.

2. Non-Slagging Off Clauses

A non-derogatory statement clause (more colloquially known as a non-slagging off clause) could be drafted in lots of different ways placing different obligations on you. Commonly these clauses will cover you saying or writing anything negative about your employer. A few important points should be established about how far the clause goes and whether your solicitor should seek to modify the clause to protect you:

• Does it cover negative comments about other employees and directors of the employer?
• Does it cover negative comments about associated companies or their products or brands?
• Does it cover written as well as verbal comments? If so this will include social media.
• Is it retrospective? For example, it may say you promise (or warrant) that prior to signing the agreement you did not say anything derogatory. In reality, many employees won’y be able to give that warranty honestly and your solicitor so the clause only applies from the the date you sign the agreement.

3. Check with your Solicitor if you’re unsure of the meaning

It is important for you to understand the effect of the clause and to make sure you fully understand the legal obligations arising from it.

If you are unclear seek further advice from your independent legal adviser before you sign the settlement agreement.

4. Consider Seeking a Reciprocal Clause

If your settlement agreement contains such a clause then the settlement agreement should be checked by your independent legal adviser to see whether your employer is subject to a similar clause and if not, then a reciprocal clause should be inserted into the agreement for your benefit i.e. a clause that states that your employer agrees not to make any bad comments about you.

Not 100% Reciprocal

Reasonable Endeavours

Unless your employer is a sole trader, they may only be willing and able to agree to use their best endeavours or reasonable endeavours to prevent their staff from saying or writing anything derogatory about you. In reality, what exactly the employer should do to fulfill that obligations is not clear. It suggests some form of positive action but what?  You may not want your employer sending an email around the whole company saying don’t say anything bad about you.

But the “best endeavours” or the lesser “reasonable endeavours” is commonly used because whilst you as an individual can control your own actions, it is more difficult for the employer consisting of a group of persons to do so.

Agreement not to Induce or Encourage

An even lesser obligation on employers sometimes put forward by their solicitors is an  agreement not to induce or encourage the employers employees not to say anything derogatory about you. There is no positive action required on the employer.

Consider Naming Specific Managers

In the more extreme cases, involving harassment or bullying, especially if there has been instances of online bullying by a colleague, you may be worried about a particular manager, director or employee saying derogatory things about you.

You might want to consider asking your solicitor to draft a clause that specifically names those people and requires your employer to take positive action to prevent or discourage them from doing so. It may be the employer is ask to procure a written agreement from those individuals, as part of the settlement, from those individuals, so you would be able to sue directly. Of course going to such lengths will often not be necessary or a deal breaker. 

5. Can an employer stop me making bad comments?

The short answer is yes, most of the time.

Of course they can’t “gag” you in a physical sense, and in some limited instances, even if you have agreed to confidentiality or to not say anything derogatory, the law may override any contractual terms. For example:

Whistleblowing

Nothing in a settlement agreement can lawfully prevent you from making a protected disclosure, commonly known as whistleblowing. But be very careful about that. You are recommended to seek advice from an employment solicitor as to (a) whether the matters you are thinking about disclosing qualify as a protected disclosure and (b) how and to whom you are able to make a disclosure (c) the specific terms of your agreement.

Required by law

If, for example, you are summoned to be a witness in a court case, and you are asked a question, on oath, you must answer that question honestly and not be constrained by the settlement agreement. 

As mentioned above, an employer is unlikely to pay settlement sums to an employee without having some ability to limit the reputational damage arising from the employment dispute.

Criminal and Regulatory Matters

Often, these will fall under the definition of whistleblowing. If they do not, and you wish to make a report to the police or a regulatory, you should take advice on whether there is a risk your employer could argue you are in breach of the settlement and if so what might happen. 

6. What would happen if I spoke about my employer negatively after I’ve signed the agreement?

This will depend on how the non-derogatory statement clause is drafted and the extent to which you have breached it.

In theory, any breach of the clause is actionable by an employer on the basis of being a breach of contract although in order for a court to award damages i.e. compensation to be paid by you, the employer would have to show that some loss flowed from the breach.

In addition, if the employer was concerned about the breach and could show that damages were an inadequate remedy, then it may seek an injunction to prevent you from making further damaging comments in breach of the clause although the circumstances would have to be such to justify such injunctive relief.

In any event, much will depend on the severity of the breach.

One end of the spectrum may be a former junior employee being overheard in a restaurant telling a close friend about “their former employer” and painting them in an unsavoury light. Although this would be a breach, it is hardly likely to lead to any serious loss unless the friend happens to be a major customer of the employer and decides to cease business relations as a consequence or is a journalist who decides to publish “an exclusive story”.

At the other end of the spectrum, a former aggrieved board director with considerable influence in a business sector starts a sustained social media campaign against his former PLC employer giving a “warts and all” insight into why the business is failing which leads to a dramatic fall in the PLC’s share price and the cancellation of several lucrative contracts.

In the latter case, the losses suffered may be very significant and the former board director is likely to be on the receiving end of prolonged and costly litigation.

7. Settlement sums may be conditional upon compliance

Regardless of these factors, employees should be aware that many employers will make the payment of the settlement sums conditional upon the employee complying with their obligations under the settlement agreement. Therefore, it could be a very costly mistake to make a bad comment about your former employer in breach of your obligations under the agreement because your employer may then refuse to pay to you the settlement sums due to you under the agreement or if they have already been paid to you, seek to recover those sums from you together with interest.

8. They can’t stop me telling the truth about them, can they?

For the reasons set out above, in practical terms that is the effect of a non-derogatory statement clause which you would be best advised to observe unless you wanted to run the risk of litigation and/or the loss or recovery of the settlement sums paid by the employer.

The only exceptional circumstances where a former employee would be relieved from complying with their legal obligations regarding non-derogatory statements are usually specified as being in order to make protected disclosures e.g. whistleblowing or by court order e.g. giving evidence under oath in legal proceedings.

Further Reading
Employee’s Guide to Settlement Agreements
15 Mistakes to Avoid – Confidentiality Clause in Settlement Agreements.

 

Answer updated on 29 April 2018

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IMPORTANT: The contents of this article are for guidance only and do not amount to legal advice.