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Settlement agreements are legally binding contracts between employer and employee. They are most often used to end the employment relationship and set out the full terms agreed between the parties. (Settlement Agreements used to be known as compromise agreements).
Settlement Agreements are voluntary. If you are presented with a Settlement Agreement by your employer, you must take professional legal advice. We offer prompt service and same day certification so there are no delays. To take advice, contact one of our specialist employment solicitors on 01827 317070 or email employment@pickerings-solicitors.com
When is a Settlement Agreement used?
A Settlement Agreement may be offered in many situations, but usually when your employment is coming to an end. They may be offered by your employer to bring the employment to an end swiftly and avoid a lengthy disciplinary or redundancy process. They may also be used when there is a dispute with your employer - again as a means of bringing the dispute to an end. In other words, it becomes the document that sets out the final terms that have been negotiated against the threat of legal claim against your employer.
Settlement Agreements can also be agreed between an employer and someone other than an employee (or former employee) who may be able to bring a claim to an employment tribunal – for instance, a worker who has a complaint about holiday pay or an unsuccessful job applicant who feels they were discriminated against at a job interview.
They are often used in situations where an employer and employee feel that their employment relationship is no longer working and a ‘clean break’ is the best way forward. In these situations both parties can agree the basis for bringing the employment to an end. Settlement agreements can also be used to reach an agreed and final conclusion to a workplace dispute or issue which does not result in an end to the employment relationship.
What does a Settlement Agreement cover?
These are the key features of a Settlement Agreement:
• They are legally binding
• They can take away your rights to bring a claim covered by the agreement – for example, the right to make a claim to an Employment Tribunal or Court. (Basically the Settlement Agreement will list the things that you cannot claim for.)
• The employee will usually receive some financial payment and will also often receive a reference as part of the agreed terms
• They are entirely voluntary – they include terms and conditions that are mutually agreed, and you do not have to enter into them if you do not wish to do so
• They are often reached through a process of discussion and negotiation. You do not have to accept the terms initially offered – there may be a process of negotiation during which both sides make offers and counter-offers.
• Negotiations about settlement agreements are often confidential, so that if an agreement is not reached, the negotiations may not be admissible as evidence in claims before an employment tribunal or in other court proceedings.
Do I have to accept a Settlement Agreement?
No. You are under no obligation to accept a Settlement Agreement and should only do so, once independent legal advice has been obtained. As mentioned above, the agreement cannot be binding unless you have received such advice and a lawyer has provided the appropriate certificate.
Why do I need to take independent legal advice on a Settlement Agreement?
If you are an employee who has been offered a Settlement Agreement by your employer, you must seek legal advice before signing it. According to section 111A of the Employment Rights Act 1996, one of the conditions for a legally binding Settlement Agreement is:
“The employee must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue that complaint or proceeding before an employment tribunal.”
If you don’t receive independent legal advice, then the Settlement Agreement is not legally binding. This is why your employer will usually pay for, or contribute towards the cost of your legal advice.
What are the benefits of entering into a Settlement Agreement?
There are many benefits to setting out terms under a Settlement Agreement, namely:
• It provides certainty for both the employer and the employee
• It offers a clean amicable break for all parties
• The employee receives the first £30,000 tax free
• The employee receives a factual job reference
• The employer can be rest assured that matters will be kept confidential between the parties
• The employer’s right to enforce post termination restrictive covenants are re-verified
• It avoids the cost, time and stress of tribunal or court litigation
• It eliminates litigation risk
• There are no fees payable by the employee. The fee contribution is payable by the employer.
Who will pay for the independent legal advice on my Settlement Agreement?
It is usual for your employer to pay for, or contribute towards the cost of your legal advice.
What will the legal adviser/solicitor do with the Settlement Agreement?
They will ensure that you fully understand the terms of the agreement that you are signing up to. We will take you through the contract step by step. Our solicitors will explain each of the terms and outline what your employer is offering you and what obligations apply to you. If necessary they will enter into negotiation with your employer on your behalf.
Once you have taken advice on the Settlement Agreement and you are happy to agree to the terms, the solicitor will sign a letter confirming that you have received their advice and confirming that they have an insurance policy covering the risk of a claim made by you.
Getting informed, impartial, and balanced legal advice from one of our experienced employment law solicitors will help ensure that you are treated fairly and that you don't inadvertently sign away any valuable employment claims.
In summary, for a Settlement Agreement to be binding:
- The agreement must be in writing
- It must specify the claims covered by the agreement (i.e. those which cannot be brought)
- The employee must have received advice from a relevant independent adviser
- The independent adviser can be a qualified lawyer, a certified and authorised official, employee or member of an independent trade union, or a certified and authorised advice centre worker.
- The independent adviser must have relevant insurance to cover the risk of a claim by the employee in respect of loss arising from the advice.
Settlement Agreements are voluntary. If you are presented with a Settlement Agreement by your employer, you must take professional legal advice. We offer prompt service and same day certification so there are no delays. To take advice, contact one of our specialist employment solicitors on 01827 317070 or email employment@pickerings-solicitors.com
