Settlement (compromise) agreements

Produced by Tolley in association with

Employment Tax

Guidance

An agreement can be entered into by an employee and employer to end the employment on the terms set out within the agreement called a settlement agreement (known as a compromise agreement until 29 July 2013). This has specific legal meaning, in particular, applying where an employee has potential claims against the employer under the Employment Rights Act 1996 or other employment legislation, or where the employee would otherwise have a claim for breach of contract. Key managers and shareholders may sign settlement agreements if they leave employment when the employing company is sold.

The main reason for entering into a settlement agreement is that the employer has certainty that the employee will have no claim in the future against the employer.

Among other things, the settlement agreement will set out all payments and benefits due to the employee from the employer. This guidance note addresses the employment tax implications of a settlement agreement. Legal advice should be taken on all other aspects of the agreement. See Simon’s Taxes E4.823.

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Sue El Hachmi

Senior Associate at Osborne Clarke

Sue advises on the design and implementation of employee incentive arrangements for private and public companies, including all types of tax-advantaged plans and bespoke arrangements for senior executives and management. Sue also advises on the incentive-related aspects of corporate transactions and has experience of private equity transactions and public company takeovers, flotations and demergers. Sue is a member of the Share Plan Lawyers Group and a member of the UK BioIndustry Association Finance and Tax Advisory Committee.

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