Employment settlement agreements: Key considerations

Employment settlement agreements are legally binding contracts between an employer and an employee that include the terms of an agreed departure or resolution of a dispute. These agreements, previously known as compromise agreements, allow employees to waive certain employment rights in exchange for compensation or other benefits. Understanding your rights and obligations before signing one is crucial.

Key features of settlement agreement

  • Voluntary Participation: Both the employer and employee must enter into the agreement willingly and the employee should not be coerced or placed under undue pressure
  • Independent Legal Advice: Employees must seek independent legal advice to ensure they understand the terms
  • Written Agreement: To be legally enforceable, the agreement must be in writing
  • Settlement of Specific Claims: The document must clearly state which claims are being settled to prevent future disputes

How long do you have to consider a settlement offer?

A common concern for employers and employees is how long to offer for time to consider an offer before making a decision. The guidance from ACAS (the Advisory, Conciliation and Arbitration Service) suggests a 10-day period to review a written settlement agreement.

However, recent case law has provided clarification on verbal offers and deadlines.

In Gallagher v McKinnon’s Auto and Tyres Ltd [2024] EAT 174, the Employment Appeal Tribunal (EAT) ruled that an employer giving an employee a 48-hour deadline to accept a verbal settlement offer did not amount to undue pressure or improper behaviour. The Tribunal clarified that the ACAS-recommended 10-day timeline applies to written offers, not verbal ones. While employees should be given reasonable time to consider offers, a shorter deadline for verbal agreements is not automatically considered coercive or unfair.

Why employers and employees use settlement agreements

Employers may offer a settlement agreement to:

  • Avoid lengthy and costly tribunal claims
  • Protect business interests by including confidentiality clauses
  • Ensure a clean break with no further claims

Employees may benefit from a settlement agreement by:

  • Receiving financial compensation beyond statutory redundancy pay
  • Avoiding the uncertainty of a tribunal claim
  • Negotiating better exit terms (e.g., a reference letter or extended notice period)

Seek expert legal advice before signing

While settlement agreements can be beneficial to both parties, they must be compliant with, amongst other things, section 203 of the Employment Rights Act to validly settle statutory claims (such as unfair dismissal and unlawful discrimination)  it’s essential for employers to prepare these in a way that complies with applicable legal obligations and for employees to be able to fully understand what rights are being waived. Seeking independent legal advice ensures that the agreement is fair and that you are not accepting an offer under undue pressure.

If you are dealing with exit terms and a settlement agreement, Tees Law is here to help. Our experienced employment law specialists can prepare, review and advise on such agreements and the best course of action.

Nesting: What is it and does it benefit children?

You may have come across the term ‘nesting’ or ‘birdnesting’ in the context of post-separation parenting and divorce. In this piece, we look at nesting, its benefits and disadvantages.

Nesting defined

Nesting is a co-parenting arrangement where the children remain in the family home and the mum and dad alternate living there.

In some cases, parents will jointly secure (whether by renting or buying) a second (usually smaller) property where each parent will stay while the other parent is staying with the children.  In other cases, each parent has separate alternative accommodation, possibly with family members or friends, if resources do not allow them to rent or buy.

Nesting aims to provide consistency and reduce upheaval for children during their parents’ separation. By keeping the children in a familiar environment, nesting helps preserve a sense of routine and security.

What are the benefits of nesting?

Nesting enables the children to maintain a single, familiar home environment, rather than having to move between two different houses.   Particularly in the early stages of parents’ separation, staying in the same home can alleviate any anxiety and aid in adjusting to the changes in their family dynamic.

Maintaining two-family homes following separation can be financially challenging, as it often involves duplicating expenses such as rent or mortgage payments, utilities, and household supplies.  Nesting can ensure that children spend time with each parent in a home that is appropriate for their needs.

Where there are limited resources, nesting can be used as an interim solution until a family home is sold and the proceeds divided, when both parents can purchase or rent their own homes.

Practical arrangements can also be easier for children in a nesting arrangement – there is no need for two sets of clothes, furniture and toys, for example.

What are the disadvantages of Nesting?

Despite its several benefits, nesting is not appropriate or beneficial for all families in all circumstances.  Nesting requires parents to maintain open communication, cooperation, and a willingness to set personal differences aside for the sake of creating a single harmonious home environment for the children.  It also requires mutual respect for the other’s personal space and privacy in the shared home.

Depending on the circumstances of the relationship breakdown, it might be too difficult or painful for parents to continue to share a home, even if they are not staying there at the same time, and any unhappiness or conflict that occurs, as a result, could impact the children.

Even parents with a good co-parenting relationship might find that sharing responsibility for a home after separation can be difficult to coordinate, and petty annoyances over, for example, who stocks the fridge and cleans the bathroom, can create friction.

In communicating with their children about a nesting arrangement, parents need to protect against the risk of confusion or mixed messages about their parent’s relationship. Seeing their parents alternating living in the family home might create false hope for reconciliation or contribute to a sense of uncertainty.

While nesting might work well in the short term arrangement, it is usually not appropriate in a longer term living arrangement where children may benefit from making a home with each parent separately.

While it offers stability and continuity, it may also introduce confusion and require careful management from the parents. Tees family solicitors can help provide guidance on the legal aspects of nesting and help ensure the children’s best interests are prioritised throughout the process.

Demystifying spousal maintenance

Spousal maintenance, also known as spousal support or alimony, is a financial payment made by one spouse or civil partner to the other on a regular basis to help meet their financial needs. While the legal term is “periodical payments,” many people refer to it as spousal maintenance for ease of understanding. In this article, we’ll use the term spousal maintenance, and note that “spouse” includes civil partners as well as husbands and wives.

What is the purpose of spousal maintenance?

The primary goal of spousal maintenance is to assist the financially weaker party as they transition to financial independence. In some cases, if financial independence is not achievable, payments may continue until one party passes away, although indefinite maintenance orders are now less common.

Courts carefully consider several factors to determine both the amount (known as the “quantum”) and the duration (known as the “term”) of spousal maintenance. Let’s explore who qualifies, how payments are calculated, and other essential details.

Who can apply for spousal maintenance?

Anyone going through a divorce or dissolving a civil partnership can request spousal maintenance. However, it is not a guaranteed part of a financial settlement. The court’s primary objective is to achieve financial independence for both parties where fair and possible.

It’s important to note that the higher-earning spouse will not automatically be required to pay spousal maintenance. Factors such as the length of the marriage, each party’s financial resources, and their earning capacities are all taken into account. Crucially, spousal maintenance is needs-based, not income-equalising.

How is spousal maintenance calculated?

There is no strict formula for calculating spousal maintenance. Instead, the court relies on detailed budgets prepared by both parties. These budgets should outline all essential monthly expenses, including mortgage or rent, utilities, groceries, fuel, and clothing, as well as discretionary expenses like holidays and entertainment.

  • Payee’s Budget: Demonstrates the financial shortfall the receiving spouse needs to cover their reasonable expenses.
  • Payer’s Budget: Establishes whether they have sufficient surplus income to meet the requested maintenance payments.

Both parties may need to adjust their expectations, as maintaining two separate households is often more expensive than maintaining one. Spousal maintenance is generally viewed as a temporary support mechanism, encouraging the payee to become financially self-sufficient.

How long does spousal maintenance last?

While courts in England and Wales are known for their generosity with spousal maintenance orders, permanent or “joint-lives” orders are increasingly rare. The court often imposes a fixed-term order, giving the recipient time to achieve financial independence.

If the parties can reach an agreement through solicitor negotiations, this can be formalized in a court order. If not, the court will make a determination. Documentation is crucial to ensure any agreed payments are enforceable.

What happens if my ex refuses to work?

Both parties are generally expected to maximize their earning capacity. If a spouse refuses to seek employment without a valid reason, the court may impute an income to them, assuming they could reasonably earn a specified amount.

What events can impact spousal maintenance?

1. Death
  • Spousal maintenance usually ends upon the death of the paying party unless the order specifies otherwise.
2. Remarriage
  • If the payee remarries, spousal maintenance automatically ceases.
  • If the payer remarries, maintenance payments remain unaffected.
3. Cohabitation
  • Cohabitation by the payee may be grounds for reducing or terminating spousal maintenance, but it is not automatic unless specified in the court order.
4. Change in Circumstances
  • If either party’s financial situation changes, an application can be made to the court to vary the maintenance order. For example, the payer may request a reduction if they lose their job, while the payee may apply for an increase if their financial situation deteriorates.

How does child maintenance impact spousal maintenance?

Child maintenance is handled separately from spousal maintenance. Child-related expenses (such as school uniforms and extracurricular activities) are accounted for in a different budget.

For most families, child maintenance is calculated using the Child Maintenance Service (CMS) formula. In some cases, such as when the paying parent has a high income or lives abroad, the court may have the authority to determine child maintenance. Even if child maintenance is included in a court order, either party can apply to the CMS for a recalculation after 12 months.

Final thoughts

Spousal maintenance can be a complex and sensitive issue, with outcomes varying significantly depending on individual circumstances. Seeking legal advice is essential to ensure you understand your rights and responsibilities. Whether you are negotiating an agreement or pursuing a court application, professional support can help you achieve a fair resolution.

For more guidance on spousal maintenance or other family law matters, contact a qualified solicitor to explore your options.