| name | settlement-agreement-review |
| description | Reviews or drafts a settlement agreement under s.203 ERA 1996 for England & Wales. Flags apparent s.203 ERA condition gaps for a solicitor to confirm (writing, specific complaints, independent adviser, identification, insurance, statement of conditions), drafts the substantive terms (sum, tax characterisation, confidentiality, references, restrictive covenants, indemnities), and surfaces enforceability risks. Does not rule on validity and is not legal advice. Use when the user says "review this settlement agreement", "draft a settlement agreement", "compromise agreement" (old term), or asks whether an agreement is binding. |
| argument-hint | [--mode=review|draft] [--party=employer|employee] |
/settlement-agreement-review
- 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.
- Review the substantive terms against the party's position (employer or employee).
- Surface tax issues (ITEPA 2003 — termination payments, PENP). Never present computed figures as authoritative — they are prompts for an accountant to sign off.
- 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)
- In writing.
- 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.
- 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).
- Adviser identified — name and address in the agreement.
- 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.
- 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.
- Legal fees contribution (
[SME VERIFY — typical £500-£750 plus VAT], paid direct to the adviser).
- Tax indemnity — employee indemnifies employer against any further income tax / NICs claimed by HMRC on the termination payment. Standard for employer; employee should resist a broad indemnity that catches tax the employer should have deducted.
- Payment date — typically within 14-28 days of the termination date / signature.
Confidentiality and non-disparagement
- Mutual non-disparagement preferred from employee's side.
- Confidentiality — usually two-way; carve-outs for spouse/partner, professional advisers, regulators (whistleblowing — must not gag protected disclosures, see s.43J ERA
[CITE NEEDED — s.43J ERA 1996]), HMRC, and court orders. Recent law has tightened on NDAs in discrimination/harassment cases — [CITE NEEDED — Victims and Prisoners Act 2024] [SME VERIFY — Victims and Prisoners Act 2024 NDA restrictions in regulated professions].
Reference
- Agreed wording attached as a schedule.
- "Factual reference only" is a common employer position. Employee should push for a positive agreed reference.
- Obligation on employer to give substantially the same reference to any future enquirer for [X years / indefinitely].
Warranties and reps
- Employee typically warrants no other unresolved complaints and no knowledge of any matter that would give rise to a complaint.
- Employee returns property, deletes data.
- Employee waives reinstatement / re-engagement.
Restrictive covenants
- Either confirm existing covenants remain in force (employer position), or release them (employee position).
- Garden leave already served counts against post-termination restraint enforceability.
Claims covered
- List each statutory claim by name. Generic "all claims" tail is acceptable as a backstop but does not save a missing specific complaint.
- Carve-outs (standard): accrued pension rights, personal injury (latent / unknown), enforcement of the agreement itself.
Governing law / jurisdiction
- Laws of England and Wales. Exclusive jurisdiction of E&W courts (with ET retained jurisdiction over the underlying employment claims pending settlement).
Workflow
Step 1 — Apparent statutory status (flag, do not rule)
Run through the s.203 checklist. Flag any condition that appears missing or doubtful for a solicitor to confirm. Do not declare the agreement valid or invalid — report apparent status only.
Step 2 — Substantive review
Walk through each substantive term against the checklist. Flag terms that are unusual, missing, or commercially adverse to the user's side.
Step 3 — Tax review
Review the breakdown. If PILON is being paid, work the PENP formula as a cross-check only — [NOT TAX ADVICE — recompute, accountant sign-off] on the result and on every figure. PENP formula: (BP × D) / P — where BP = basic pay in pay period before notice, D = days in unworked notice, P = days in pay period [SME VERIFY — s.402D ITEPA formula and definitions]. Do not present the computed PENP or any net figure as authoritative; it is a prompt for an accountant.
Step 4 — Mark up
Output either: (a) commented review with risk flags, or (b) clean draft.
Output (review mode)
Render the sections below as the finished review — do not echo this template back, and do not invent terms to fill a section; if the agreement is silent on a head, say so. Lead with the not-legal-advice line.
A reviewer-note line: not legal advice; flags apparent issues only; verify with a solicitor before relying on anything below; this skill does not rule on the validity of the agreement.
Apparent s.203 status (s.203 ERA / s.144 EqA) — a table of the six conditions, each marked Present / Apparently missing / Unclear, with a note. Then one line: Apparent status (verify with a solicitor): [conditions appear satisfied / [N] condition(s) appear missing — confirm with a solicitor]. Never state "Valid" or "Invalid".
The conditions to check:
- In writing
- Specific complaints identified (note any that appear missing)
- Independent adviser
- Adviser named and addressed
- Adviser insured (recital)
- s.203 conditions satisfied (recital)
Substantive review — a table by clause (payment breakdown, confidentiality, reference, warranties, restrictive covenants, claims schedule, tax indemnity): position, risk to the user's side, suggested change.
Tax analysis — every figure carries [NOT TAX ADVICE — recompute, accountant sign-off]. Cover PILON / PENP, s.401-403 ITEPA treatment, other heads, and any net-to-employee estimate — all as prompts for an accountant, never as authoritative figures.
Recommended changes — numbered list of specific edits in priority order.
Markers used inline as you go:
[CONDITION GAP — flag for solicitor to confirm] — a s.203 condition that appears missing or doubtful (not a ruling that the agreement is invalid).[NOT TAX ADVICE — recompute, accountant sign-off] — on every tax figure.[CITE NEEDED — authority] — a statute or case referenced without a verified citation.[SME VERIFY — item] — a threshold, market figure, or contested position counsel should confirm (e.g. HMRC view on injury-to-feelings tax; Victims and Prisoners Act 2024 NDA restrictions; PENP figures).
What this skill does not do
- Provide legal advice. It flags apparent issues for a qualified adviser to confirm.
- Rule on the validity of the agreement. It reports apparent s.203 status only — a solicitor confirms validity.
- Provide the independent advice the employee needs — that must come from a qualified adviser per s.203(3A) ERA 1996
[CITE NEEDED — s.203(3A) ERA 1996].
- Compute tax authoritatively. Every figure needs accountant / tax counsel sign-off.
- Verify case law or statute against a live source — check any authority it cites before relying on it.
- Cover Scotland / NI (different statutory framing).
