Common questions on settlement agreements

As experts in drafting and advising on settlement agreements, we do come across questions which are difficult to get your head around. We have created a series of ‘Ask Partners’ where we address questions on tricky issues within settlement agreements.

Can an employee receive their termination payment under the settlement agreement before the termination date of employment?

There may be tax implications if the termination payment is paid before the termination of employment, as HMRC may not accept that the sum is compensation for the loss of office with the requisite tax exemption.

The other risk of signing the agreement and paying the termination payment before employment actually terminates is that this may affect the effectiveness of the waiver in the settlement agreement.  The employer runs the risk that the employee has not waived claims between the date that the settlement agreement was signed and the termination date and could incur further potential claims during that period in the workplace.

In circumstances where the settlement agreement has been entered into and the termination payment has been made before the termination date, little incentive remains for the employee to enter into a second settlement agreement or reaffirmation at the termination date.  However, this may be addressed by including an appropriate indemnity in the settlement agreement.

Stay tuned for more frequently asked questions on settlement agreements…