Settlement Agreements have become the go-to option for many HR advisers when an employee is to leave employment. They are very technical documents.

Settlement Agreements are strictly regulated because they are also very powerful documents. This is because they can enable an employer to escape liability for claims arising from employment or dismissal. They can effectively ‘wipe’ your employment rights.

It is a legal requirement that an employee obtains independent advice about a settlement agreement. Usually, an employer will pay a contribution for the advice.

It is essential that an employee is confident that the advisor understands the situation and can explain whether any claims do arise, even less obvious ones, and whether the proposed agreement is suitable, or the best option.

Settlement Agreements are always a good idea for employers because they can prevent claims being made.

However, even in ‘no dispute cases’ when an employee is leaving on good terms, the wording of the agreement should be checked so as not to impose onerous obligations, or incur tax unnecessarily.

It is wrong to assume that payments up to £30,000 are tax- free. Settlement agreements will invariably leave the final responsibility for tax with the departing employee, not the employer, and they should be checked very carefully for common tax traps.

Askews can advise whether any settlement agreement you are offered is a good deal for you and answer any questions you may have, so that you can make an informed decision.

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