Free, confidential whistleblowing advice
Get In Touch

DONATE

Settlement agreements and whistleblowing

SETTLEMENT AGREEMENTS AND WHISTLEBLOWING

Should I sign one?

Settlement agreements are usually a good thing! They can provide a much-needed clean break between you and your employer, and avoid the need of going to court for months and incurring hefty legal fees. Quite often, employers even settle for higher sums of money that employees would normally receive by settling their claim in the Employment Tribunal.

If you’ve been offered a settlement agreement by your employer, you must absolutely seek independent legal advice before signing, otherwise the agreement won’t be legally valid. If your employer doesn’t cover the cost of any fees you might incur in doing so, you will need to speak with a lawyer or a trade union representative.

How do I settle?

Typically, before bringing proceedings against your employer, you will begin Early Conciliation with ACAS – a conciliation process that helps parties resolve disputes without the need of approaching the Employment Tribunal. Early Conciliation is a voluntary process, so your employer might not engage at all, in which case you’ll be able to initiate proceedings. If they do, ACAS will assist you and your employer in reaching a settlement agreement.

What do they actually do?

Typically, a settlement agreement provides for an employee to receive a sum of money (the “termination payment”) in exchange for waiving certain claims against the employer.

What follows are some of the key clauses contained in settlement agreements, and what you need to look out for when negotiating the contents of yours.

Having on record an official reason for the termination of your employment (e.g. termination by mutual agreement) will prevent future employers from wondering whether your contract was terminated because your own shortcomings, such as poor performance or misconduct.

You should also consider negotiating a term requiring your employer to provide you with a reference. Typically, such a reference will reflect the agreed reason for the termination of your employment.

Sums of money payed under settlement agreements vary greatly, both in terms of amount and method of payment. They will often include:

  • Unpaid salary
  • Unpaid annual leave
  • Unpaid car allowance
  • Unpaid expenses
  • Unpaid maternity/paternity pay
  • Compensation for detriment/dismissal
  • Compensation for warranties
  • Notice pay

The more likely you are to succeed at trial, the stronger your negotiating position is. You might also consider having part of the sum paid into to your pension scheme for tax-efficiency.

As explained above, for a settlement agreement to be legally binding, the employee must receive legal advice. Therefore, your employer will normally pay a contribution towards your legal fees. Typically, this will be between £300-£500. If you’ve incurred exceptionally high legal fees, you should consider seeking a higher contribution from your employer under the terms of the settlement.

Note that your employer’s contribution towards legal fees is usually for advice on the technicalities of signing of settlement agreements, and not for advice on whether or not you should sign one. If you need advice on the latter, or would like a financial valuation of your claim, you should speak with a lawyer.

The main purpose of settlement agreements is to settle disputes, so your employer will invariably ask you to waive your right to pursue your claim(s) against them.

Your employer can’t ask you to waive any and all claims against them. Indeed, you can only be asked to waive specific claims, and each claim must be identified in the terms of the agreement, and must be limited to the context of your employment.

If you’ve filed a claim with the Employment Tribunal, your employer will want to be certain that you’ll withdraw it before they transfer you the termination payment.

Note that once your claim has been withdrawn it will come to an end, meaning that you cannot bring another claim against your employer based on substantially the same grounds, unless the courts decide that it would be in the interests of justice.

Your employer might ask you to give them an indemnity (i.e. a promise to pay them compensation) if you decide to breach the terms of the settlement agreement, and bring a claim against them in the Employment Tribunal on substantially the same grounds.

If the sum of money you would be required to pay under the indemnity is disproportionate or excessive, the indemnity may amount to a penalty clause and be legally unenforceable.

Normally, your employer will ask you to return all property belonging to them, and to delete any information relating to the the business and its clients that might be stored on your electronic devices and servers (including the cloud). It’s very important that you do so, in order to avoid your employer from claiming breach of confidentiality.

If there is property that you were using during your employment that you’d like to keep (e.g. a company car), you could negotiate ownership under the terms of the settlement.

What if the agreement contains a confidentiality clause?

Confidentiality clauses in settlement agreements are common, and generally seek to prevent employees from disclosing information about the settlement, any sums received by the employee under the agreement, and any factual history leading up to the termination. These clauses are sometimes referred to as “non-disclosure agreements” (NDAs) or “gagging clauses”.

If you’re asked to sign a settlement agreement that includes a confidentiality clause, you should be aware that there are limits on what can legally be gagged by your employer. Indeed, as you will read below, confidentiality clauses cannot be used to intimidate or silence whistleblowers.

Unfortunately, the law on confidentiality agreements is vague, and reform is long overdue. Protect is calling for reform to prevent the use of gagging clauses, and guarantee whistleblowers faced with settlement agreements legal advice on confidentiality issues.

In summary, confidentiality clauses cannot be used to prevent the following acts:

  • Whistleblowing under the Public Interest Disclosure Act 1998
  • Reporting criminal offences to the police and other law enforcement agencies
  • Cooperating with criminal investigations and legal processes
  • Reporting misconduct and breaches of regulatory requirements to regulators
  • Referring tax-related concerns to HMRC
  • Disclosure in the context of seeking tax, medical or other professional advice
  • Disclosure where required by law or regulatory obligation
  • Disclosure in order to comply with a court order

If your employer asks you to sign a settlement agreement that contains a clause which seeks to restrict any of the above acts, you should refuse to sign the agreement until the clause has been removed, and explain that such a clause is be legally void.

Equally, your employer can’t use any legal mechanism within the settlement agreement to improperly prevent or inhibit you from doing one of the above acts. For example, you can’t be asked, under the terms of the settlement, to warrant that you’re not aware of any reason why you would whistleblow under the Public Interest Disclosure Act 1998, if that’s not the case.

Can I still whistleblow if I decide to settle?

Yes, you can! As you may have seen in the previous section, section 43J of the Employment Rights Act 1996, as amended by the Public Interest Disclosure Act 1998, provides that any clause in a settlement that tries to prevent workers from making protected disclosures is void. So, even if you’ve signed a settlement agreement that claims to prevent you from whistleblowing, you’re still legally able to do so.

What happens if I breach the agreement?

If you breach the terms of your settlement agreement, your employer will have two options:

1. Enforce the terms of the agreement. If your settlement contains an indemnity clause (see above), the sum payable under it will fall due.

2. Claim damages for breach of contract. As it’s difficult to ascertain the monetary value breaching settlement agreements, the amount of damages awarded by the Employment Tribunal varies significantly.

Need advice on this?

You can contact the Protect Advice Line for advice on interim relief and whistleblowing.

Your feedback helps us support whistleblowers better

Please fill in this quick anonymous survey about the information in this page: