/settlement-agreement-review

/settlement-agreement-review

1. Flag apparent gaps against the s.203 ERA 1996 conditions for a solicitor to confirm. This skill does not rule on validity. As legal context: if a condition is genuinely missing, the agreement does not contract out of statutory rights and the employee can still claim — so each gap matters and must be confirmed by a qualified adviser.
2. Review the substantive terms against the party's position (employer or employee).
3. Surface tax issues (ITEPA 2003 — termination payments, PENP). Never present computed figures as authoritative — they are prompts for an accountant to sign off.
4. Output a marked-up version with comments or a clean draft.

Settlement agreement (s.203 ERA 1996)

Purpose

A settlement agreement is the standard vehicle for compromising employment claims. It must comply with the conditions in s.203 ERA 1996 [CITE NEEDED — s.203 ERA 1996] (and equivalent provisions in other statutes — EqA 2010 s.144 [CITE NEEDED — s.144 EqA 2010], TULR(C)A 1992 s.288, etc.) to validly settle the statutory claims it purports to cover. Otherwise the employee remains free to bring a claim. This skill flags apparent gaps in those conditions; it does not rule on whether an agreement is valid — that is for a qualified adviser to confirm.

The other valid vehicle is an ACAS COT3 (recorded by the ACAS conciliator) — no s.203 conditions apply. COT3s are simpler; settlement agreements allow more bespoke terms.

s.203 statutory conditions (cumulative — all must be satisfied)

1. In writing.
2. Relates to the particular complaint — generic "all claims" wording without identifying the claims is not enough. List each statutory cause of action by name and section.
3. Independent adviser — the employee must have received advice from a "relevant independent adviser" (qualified lawyer, certified trade union official, certified advice centre worker, or other prescribed adviser).
4. Adviser identified — name and address in the agreement.
5. Adviser insured — a contract of insurance or indemnity provided by a professional body covering the adviser against the risk of loss arising from the advice.
6. Statement that the conditions are satisfied — express recital.

As legal context: a genuinely missing condition is fatal — the agreement may still settle contract claims (which don't need s.203 compliance) but won't bar statutory ET claims. Do not treat your read of the conditions as a ruling. Flag any condition that looks missing or doubtful for a solicitor to confirm rather than declaring the agreement invalid.

Substantive terms — checklist

Payment

• Sum — total compensation payment.
• Breakdown by head (every figure below is [NOT TAX ADVICE — recompute, accountant sign-off]):
  • Statutory redundancy (s.135 ERA [CITE NEEDED — s.135 ERA] — tax-free up to £30k [SME VERIFY — current £30k threshold], doesn't count to PENP).
  • Notice / PILON — taxable as earnings (s.402B ITEPA [CITE NEEDED — s.402B ITEPA 2003] — PENP regime).
  • Ex-gratia compensation for loss of office — first £30k tax-free under s.401-403 ITEPA [CITE NEEDED — s.401-403 ITEPA 2003] [SME VERIFY — current £30k threshold], balance taxable as employment income.
  • Restrictive covenant payment — taxable as earnings (s.225 ITEPA [CITE NEEDED — s.225 ITEPA 2003] — restrictive undertakings).
  • Injury to feelings (discrimination cases) — typically tax-free if causally linked to the discrimination rather than termination (Moorthy litigation [CITE NEEDED — Moorthy v HMRC]; HMRC position contested — [SME VERIFY — current HMRC view]).
  • Pension contribution.