Settlement Agreement Payments

The Employer will normally make an ex gratia payment i.e. a termination payment to the employee in return for which the employee will waive his/her rights to claim in the tribunals or civil courts in relation to claims which have arisen during the employment relationship or as a result of its termination.  It does not normally involve a waiver of personal injury claims or accrued pension rights.

When considering whether the amount is sufficient an employer and employee will need to consider how an employment tribunal would assess compensation.

Generally compensation is based on financial loss. For instance in unfair dismissal claims a compensatory award would be based on net loss of earnings resulting from the dismissal. Also an employee would be entitled to recover a basic award (based on age, length of service and gross weekly pay (subject to a cap)). If there has been an act of discrimination then the tribunal has the power to award a separate amount for injury to feelings.

An independent legal advisor will be able to assess an employee’s claims and establish whether the ex gratia payment on offer is adequate or whether an increase should be sought.

The agreement should also provide a termination date with payment of salary and benefits to that date together with a payment for any accrued but untaken holiday to the termination date.

It may also provide for a payment in lieu of notice or other contractual benefits.

Author: Paul Grindley