Settlement Agreements (previously known as Compromise Agreements) are legally binding written contracts where an employer and employee terminate employment on agreed terms. They are commonly offered where an employer and employee wish to avoid a formal process such as redundancy, disciplinary action or a dispute.
Settlement Agreements can offer a quick and mutually beneficial resolution, but they are entirely voluntary.
No employee can be forced to agree to one.
That said, refusing to sign can have consequences, and those consequences will depend on the wider circumstances and what your employer decides to do next.
Need a Settlement Agreement reviewed? Contact Laura Colebrook
The nature voluntary of Settlement Agreements
A Settlement Agreement should be entered into freely and without pressure. For an agreement to be valid and enforceable, certain conditions must be met:
- The employee must not be pressured or coerced into signing.
- There must be time to consider the terms.
- Independent legal advice must be taken before signing.
If any of these conditions are not met, the agreement may not be enforceable.
Why might you refuse to sign a Settlement Agreement?
There are a number of reasons why you might choose not to accept the offer made in a Settlement Agreement:
- The compensation amount is too low compared to what you might be awarded if you went to an Employment Tribunal.
- The terms are unfair or overly restrictive, for example excessive non-compete clauses.
- You feel rushed or pressured or haven’t had proper time to seek legal advice.
- You want to pursue a formal grievance or legal claim instead.
How long do you have to decide whether you want to sign the Settlement Agreement?
Advisory, Conciliation and Arbitration Service (ACAS) guidance states that employees should be given a minimum of 10 calendar days to consider a Settlement Agreement.
If an employer insists on an immediate signature or applies undue pressure, this may be relevant when assessing whether the agreement was entered into freely.
What happens if you don’t sign a Settlement Agreement?
Refusing to sign a Settlement Agreement doesn’t close the door on resolution, it may lead to further negotiation, especially if the employer wishes to avoid legal proceedings.
However, this is not guaranteed. Some employers may choose not to revisit the offer or could proceed with formal action e.g. disciplinary or redundancy, so it’s important to weigh the risks carefully.
Whilst it is only the employee who can decide if they wish to sign the Settlement Agreement, a solicitor can advise as to whether they think the terms are fair or if they think they could increase the compensation offered. They can also ensure all of the employee’s contractual rights have been included, such as bonus, pension contributions, car allowance etc.
It is important to note that when an employee signs a Settlement Agreement, they lose their right to make a claim against their employer in a Court or an Employment Tribunal in future e.g. to make a claim for unfair dismissal.
If you decide not to sign a Settlement Agreement:
Your employment may continue as normal
Your employer may start or continue a disciplinary, redundancy or capability process
You retain the right to bring a claim in the Employment Tribunal
The employer may withdraw the offer or revise it
Before refusing to sign
Consider:
What is a potential employment tribunal claim worth?
- Do you have the appetite, time, and resources to bring a claim against your employer?
- Would a better deal realistically be achievable or would you better off accepting the terms currently being presented in the Settlement Agreement?
Consider the alternatives if you don’t sign a Settlement Agreement
Pursuing an Employment Tribunal claim
A successful claim could result in higher compensation than a settlement offer. However, tribunal claims can be lengthy, stressful and uncertain, and legal costs are not usually recoverable.
Time limits are strict. Most claims must be brought within three months minus one day of termination.
Remaining in employment
Continuing to work may be possible, but relationships can become strained and formal processes may still follow.
Negotiating a better deal
In some cases, rejecting an offer may open the door to negotiation. This is not guaranteed, and employers are not obliged to fund additional legal advice during negotiations.
Relying on statutory entitlements
Without a settlement, you may be limited to notice pay, accrued holiday and statutory redundancy pay (if applicable), which may be less than the settlement offered.
What are the penalties for breaking a Settlement Agreement?
A Settlement Agreement is a legally binding contract and there are serious implications if the terms are breached. If an employee breaks any of the terms of their Settlement Agreement, the employer may be able to recover some, or all of the money paid to the former employee.
The role of independent legal advice
Independent legal advice is a legal requirement for any Settlement Agreement to be valid. A solicitor can explain the terms, assess the risks of accepting or refusing, and advise whether negotiation may be appropriate.
You can read more about independent legal advice on settlement agreements.
How we can help
Ultimately, employees do have the right to refuse to sign a Settlement Agreement. However, that decision should be made with a clear understanding of the potential legal and financial consequences.
We help employees understand the implications of signing or refusing a Settlement Agreement, assess whether the terms offered are reasonable, and explain the risks involved. We can also assist with settlement negotiations and confidentiality clauses where appropriate.
If you would like a Settlement Agreement reviewed, please contact Laura Colebrook in our Employment Department.