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Settlement Agreements - £500 to Cover Legal Advice "Wholly Unrealistic"

on Friday, 15 November 2019.

In a recent case, the Employment Appeal Tribunal (EAT) commented that where the advisor is expected to advise on merits and quantum, as well as the terms and effect of the proposed settlement, a contribution of £500 would not be sufficient.

Recap on Legal Costs for Settlement Agreements

In order for a settlement agreement to be valid, an employee must obtain independent legal advice on the effect of the agreement before it is signed. Employers will therefore often include a clause in the agreement for a contribution to the employee's legal costs.

However, there is no obligation on an employer to pay for the legal advice, and the amount of the contribution (if any) will not affect the validity of the agreement itself.

Solomon v University of Hertfordshire

At the Employment Tribunal (ET), Mrs Solomon (the unrepresented claimant), was unsuccessful in her 38 claims for sex and race discrimination, but was granted £1,900 in compensation for unfair dismissal.

In the run up to the hearing, Mrs Solomon had rejected a settlement offer by the University of £50,000 with an offer to pay £500 for independent advice. When looking at costs, the ET found that Mrs Solomon was unreasonable in failing to take advice on that offer and rejecting it and awarded the University £20,000 in costs. Mrs Solomon appealed to the EAT.

The EAT upheld Mrs Solomon's appeal on costs and specifically referred to the ET's finding that the claimant was unreasonable in failing to take advice on the offer. The judge stated that the offer of £500 to Mrs Solomon to obtain legal advice was wholly unrealistic to cover both advice on the terms of the settlement agreement and advice on the merits of the of the offer. The judge commented that the amount offered meant that Mrs Solomon would have had to make a lay assessment as to the merits of her claim.

The costs award has been sent for re-hearing.

Best Practice

Whilst the findings in this case, and the comments of the judge are very fact specific, they highlight the need to be clear about the purpose of the employer contribution to legal fees in cases involving a settlement agreement.

If an employer makes it clear early on that the purpose of the contribution is covering the cost of providing the statutory advice only (i.e. the terms and effect of entering into the agreement) then the employer may be in a better position to resist requests for an increase.

If the terms of settlement agreement contain obligations on the solicitor to advise on the merits of the employee's case or the scope of their claims, then employee may be justified in pushing back on the level of the contribution.

As always, in practice much will depend on the overall deal, the bargaining power of the parties and the scope of the advice the employee's adviser is expected to provide. However, it seems likely that this judgment will be quoted by employees looking for a higher contribution to their fees.

If you would like any advice on how to manage a settlement agreement, please contact Michael Halsey in our Employment Law team on 020 7665 0842, or complete the form below.


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