Settlement agreement costs are an important consideration for both employers and employees when bringing an employment relationship to an end. These agreements are commonly used in employment law to resolve potential claims, including unfair dismissal, without the need for formal court proceedings.

Understanding how legal costs are handled within a settlement agreement is essential, particularly as employers often make a financial contribution towards the employee’s legal fees.

What Are Settlement Agreement Costs?

Settlement agreement costs refer to the legal fees associated with drafting, reviewing, and advising on the agreement. In most cases, the employer will offer a contribution towards the employee’s legal costs as part of the overall package.

This contribution is designed to ensure the employee can obtain independent legal advice on the terms and effect of the agreement, which is a legal requirement for the agreement to be valid.

Typically, employers offering settlement agreements will specify a fixed fee contribution. This is often around £500 plus VAT, although the amount can vary depending on the complexity of the situation and the seniority of the employee.

Employer Contributions to Legal Fees

It is standard practice for employers to cover some or all of the legal fees for settlement agreement solicitors. This is because the agreement cannot be legally binding unless the employee has received independent legal advice.

The employer’s contribution may:

• Fully cover the legal fees where the agreement is straightforward
• Partially cover costs, requiring the employee to pay any shortfall
• Be increased where negotiations become more complex

Where additional work is required, such as negotiating improved terms or addressing multiple potential claims, legal fees may exceed the initial contribution.

What Do Settlement Agreement Costs Include?

Legal costs in settlement agreements typically cover:

• Reviewing the terms and conditions of the agreement
• Advising on the financial offer and termination date
• Explaining the legal implications, including waiver of potential claims
• Negotiating improved terms, where appropriate
• Ensuring compliance with employment law requirements

The level of work involved will depend on the complexity of the agreement and whether the employee wishes to negotiate before they accept the offer.

Are Settlement Agreement Costs Negotiable?

Yes, both the settlement sum and the employer’s contribution towards legal fees can often be negotiated.

If the initial offer does not adequately reflect the employee’s position. For example, in cases involving unfair dismissal or multiple potential claims, there may be scope to increase both the compensation and the fee contribution.

Employees should not feel pressured to accept the offer immediately. Taking the time to obtain proper legal advice can often result in a more favourable outcome.

Why Independent Legal Advice Is Essential

For a settlement agreement to be legally binding, the employee must receive independent legal advice from a qualified solicitor or adviser. This advice must cover the terms and effects of the agreement, as well as its impact on the employee’s rights.

Without this step, the agreement cannot be enforced.

Independent legal advice ensures that the employee fully understands:

• What rights they are giving up
• Whether the financial offer is fair
• Any restrictions, such as confidentiality or non-compete clauses

This is why employer contributions towards legal fees are a standard feature of settlement agreements.

How Greener Costs Can Assist

Settlement agreement costs can vary significantly depending on the complexity of the matter, and it is important to ensure that any legal fees are reasonable and proportionate.

Greener Costs provides specialist support in assessing, reviewing, and advising on legal costs across a wide range of matters, including those arising from employment-related disputes. Whether you are an employer seeking clarity on appropriate fee contributions or an individual reviewing the costs involved in obtaining independent legal advice, expert input can help you make informed decisions.

Support can include reviewing fee structures, advising on proportionality, and assisting with cost-related disputes where legal fees exceed initial expectations.

If you require guidance on settlement agreement costs or wider legal cost issues, get in touch with Greener Costs today.

Call: 01204 263047
Email: info@greenercosts.co.uk

Frequently Asked Questions

1. Are settlement agreement legal fees taxable?

In most cases, the employer’s contribution towards legal fees is paid directly to the solicitor and is not treated as taxable income for the employee. However, the overall settlement package may have tax implications depending on how payments are structured, so it is important to seek advice on this.

2. How long do you have to consider a settlement agreement?

Employees are usually given a reasonable period to review the agreement, often around 10 calendar days, although this can vary. You should not feel pressured to accept the offer immediately, as taking time to obtain independent legal advice is essential before signing.

3. What happens if you do not take legal advice on a settlement agreement?

If you do not receive independent legal advice, the settlement agreement will not be legally binding. This means the employer cannot rely on it to prevent future claims, which is why employers insist on this requirement being fulfilled.

4. Can you use any solicitor for a settlement agreement?

Yes, you are free to choose your own solicitor, provided they are qualified to give employment law advice. Many employees choose specialist settlement agreement solicitors to ensure they fully understand the terms and whether the offer is fair.