Having recently concluded a settlement agreement with your former employer, you may be wondering about the legal and practical implications for your future employment. While settlement agreements typically mark the end of one employment relationship, understanding how they impact your next career move is essential.
At Hibberts Solicitors in Cheshire, our settlement agreement solicitors understand the legal complexities that can affect your transition to new employment after a settlement agreement. This comprehensive guide will help you navigate the key legal considerations to protect your interests and maximise your opportunities.
Understanding Settlement Agreement Terms That Affect Future Employment
Before beginning your job search, it’s important to understand how specific elements of your settlement agreement and contract of employment with your previous employer might impact upon your options and job search.
Reference Provisions
Agreed references: An agreed reference is often one of the most valuable aspects of a settlement agreement. Review the exact wording carefully to understand:
- What your former employer has committed to providing
- Whether the reference is limited to factual information or includes qualitative statements
- Any limitations on who can provide references
- Whom any reference requests must be sent to
If your settlement agreement doesn’t include a reference clause, you may want to seek legal advice on your rights regarding references as this is an area where there are a number of myths and misunderstandings.
Confidentiality Clauses
Most settlement agreements contain confidentiality clauses that restrict what you can disclose about:
- The existence of the settlement agreement itself
- The terms of the agreement
- The circumstances leading to your departure
- Potentially sensitive business information
Understanding the exact scope of these provisions is crucial when discussing your previous employment with potential employers. Legal advice can help you navigate those discussions regarding your experience but also your departure from your previous employer without breaching confidentiality.
Restrictive Covenants (sometimes called Post-Termination Restrictions)
Your settlement agreement may have:
- Retained existing restrictive covenants from your employment contract
- Modified these restrictions (either strengthening or relaxing them)
- Waived certain restrictions entirely
- Added new restrictions
Common restrictive covenants include:
- Non-compete clauses limiting work in competing business or setting up as a competitor yourself
- Non-solicitation of clients/customers and prospective clients/customers
- Non-dealing with clients/customers and prospective clients/customers
- Non-solicitation of colleagues
- Confidentiality of trade secrets and proprietary information
- Non-disparagement provisions
These restrictions may have significant implications for which roles or industries you can pursue immediately. Seeking legal advice to understand the enforceability and scope of these provisions is advisable before commencing your job search and certainly before accepting an offer of new employment.
Warranties and Undertakings
Some settlement agreements require you to provide warranties or undertakings that may affect future employment, such as:
- Confirming you have not received or accepted other job offers
- Disclosing discussions with potential employers
- Agreeing to certain conduct after employment terminates
Breaching these terms could potentially invalidate your settlement agreement or trigger costly repayment provisions. Very often, a settlement agreement will also contain clauses meaning that if you breach it, you not only have to repay some or all of the sums received but you also have to indemnify the former employer in respect of any losses which would include their legal costs.
Legal Considerations When Discussing Previous Employment
One of the most common challenges after a settlement agreement is determining what you can legally disclose about your previous employment.
Balancing Confidentiality and Transparency
You must balance your obligations under the confidentiality provisions with the need to be transparent in job applications. Consider these approaches:
- Review your agreement with your solicitor to understand exactly what information is restricted
- Prepare legally compliant explanations for your departure that don’t breach confidentiality
- Focus on factual aspects of your previous role that aren’t subject to confidentiality
Non-Disparagement Provisions
Many settlement agreements contain non-disparagement clauses either binding just on the employee or sometimes on both parties. When discussing your former employer:
- Avoid negative statements about the company, its products, services, or leadership
- Focus on neutral or positive aspects of your experience
- Be particularly careful in written communications that could be preserved and could be used in any later legal proceedings
Legal Risks of Disclosure
Understand the potential consequences of breaching confidentiality or non-disparagement provisions:
- Financial penalties (often specified in the agreement)
- Potential for the former employer to reclaim settlement payments
- Potential liability under any indemnity clauses
- Possible injunctive relief
- Damage to professional reputation
Tax Implications for Your Next Role
Your settlement payment and future employment decisions may have important tax considerations.
Settlement Payment Tax Planning
- Understand which portions of your settlement package are or may be tax-free
- Ensure that the settlement agreement has been drafted appropriately, regarding the taxation of the sums payable to you
- Consider how the timing of new employment might affect the tax treatment of your settlement
- You may benefit from specialist tax planning advice and regarding potential payments into a pension
It is vital that you obtain advice regarding payments into pensions prior to a settlement agreement being entered into.
Tax Year Considerations
- Starting a new role in a different tax year than when you received your settlement may offer advantages
- Consider consulting with a tax specialist about optimal timing if your settlement is substantial
Legal Protection in Your New Employment
As you move into a new role, certain legal precautions are advisable.
Employment Contract Review
Have your new employment contract professionally reviewed to ensure:
- It doesn’t conflict with any continuing obligations from your settlement agreement or your previous contract of employment
- The terms adequately protect your interests
- Any probationary periods or performance metrics are clearly defined and reasonable
- The implications of any restrictive covenants you are being asked to enter into
Protecting Yourself Against Future Claims
- Maintain records of all communications with your former employer after departure
- Document compliance with ongoing obligations under your settlement agreement
- Consider disclosing relevant restrictions to your new employer (without necessarily revealing the existence of a settlement agreement)
- Ensure you understand whether you are obliged to disclose any restrictions to a new employer, and also if you are contractually obliged to disclose to your former employer if you receive and/or accept any job offers
Enforceability of Restrictive Covenants
Understanding when restrictive covenants may or may not be enforceable is crucial for making informed decisions.
Key Factors Affecting Enforceability
Courts generally only enforce restrictions that:
- Protect a legitimate business interest
- Are no wider than reasonably necessary
- Are limited in duration and geographic scope
- Are not contrary to public interest
Impact of the Settlement Agreement on Enforceability
The settlement agreement itself may affect enforceability:
- Payment of additional consideration specifically for restrictions may strengthen enforceability
- Acknowledgments within the agreement regarding reasonableness may be relevant
- Modifications to original employment contract restrictions might reset the assessment
Getting Specific Legal Advice
The enforceability of restrictions is highly fact-specific. Factors that might affect your situation include:
- Your seniority and access to confidential information
- Whether client relationships were truly personal to you
- The customs and practices in your specific industry
- Whether the employer has consistently enforced similar restrictions
Guidance on Timing Your Next Role
The timing of your next role can have legal and financial implications.
Settlement Agreement Timing Provisions
Some settlement agreements contain provisions that may affect when you can start a new role:
- Garden leave requirements
- Specific termination dates that affect restriction periods
- Provisions regarding competing offers or discussions
Financial Timing Considerations
- Some settlement payments may be structured or contingent on certain conditions
- Understanding payment schedules can help you plan your transition
Conclusion: Protecting Your Interests While Moving Forward
A settlement agreement creates both obligations and opportunities as you transition to new employment. By fully understanding your legal position, you can protect yourself while maximising your career options.
At Hibberts Solicitors, we’re committed to supporting you through every stage of your employment journey. Whether you need assistance understanding the terms of your settlement agreement or guidance on your new employment contract, our expert team is here to help.
Frequently Asked Questions
- Am I legally obligated to tell a new employer about my settlement agreement?
No, there is typically no legal obligation to disclose the existence of a settlement agreement to a new employer, provided you don’t breach any confidentiality provisions. - Can my former employer tell potential employers that I signed a settlement agreement?
Generally, no. Most settlement agreements contain mutual confidentiality clauses that prevent your former employer from disclosing the existence or terms of the agreement. - How do I know which restrictive covenants are enforceable?
Enforceability depends on several factors including scope, duration, and whether they protect legitimate business interests. Seeking specific legal advice is recommended. - What legal action can my former employer take if I breach confidentiality terms?
Potential consequences include financial penalties, repayment of settlement sums, injunctions, and in some cases, further legal action for damages. - Do I need to disclose restrictions from my previous employment to a new employer?
It depends. While not always legally required, it may be prudent to disclose restrictions that might affect your ability to perform certain aspects of a new role. Sometimes yes, contractually you are required to disclose them. Obtaining legal advice from an experienced solicitor in this area is crucial. - Can my former employer change the agreed reference after the settlement agreement is signed?
No, they are contractually bound to provide the reference as agreed in the settlement terms, although clearly it depends upon what the binding contract actually says. - How long are post-employment restrictions typically enforceable?
This varies by type of restriction and industry, but typically range from 3-12 months. Restrictions extending beyond 12 months are less likely to be enforceable unless in exceptional circumstances. Specific advice should be sought and this will differ on a case by case basis taking into account a range of factors.
