What is a Settlement Agreement?

A Settlement Agreement is a legally binding agreement following the termination of your employment between your employer and employee. It is used often as a means of resolving a grievance or disciplinary during your employment or in some cases of redundancy. A Settlement Agreement formerly known as a compromise agreement is just that; a resolution / settlement between the parties.

The result in all cases is to bring your employment to an end without recourse to legal action. Settlement Agreements are the only way you can validly “contract out” of your employment law rights such as your notice period.

Settlement Agreements usually provide for a severance payment, in return for which you agree not to pursue or withdraw any grievance or employment claim you may have at the employment tribunal.  The first £30,000 of this compensation sum can often be made tax free and sums over this can be placed into a pension subject to terms.

The Settlement Agreement will also handle your notice pay, outstanding holiday, expenses, any bonus or commissions, terms of confidentiality and reference. We would also try in the Settlement Agreement to agree terms of an announcement to clients and staff, waive any restrictive covenants you may have and secure where applicable out placement services or additional benefits.

You must take independent legal advice for a Settlement Agreement from a solicitor about the terms of the Settlement Agreement for it to be legally binding. The Settlement Agreement solicitor will be required to complete a certificate confirming that you have received this advice. Your employer will normally contribute towards the cost of this and the sum will be specified in the Settlement Agreement itself. Where additional costs are applicable this firm, for example, will seek to try and recover them from the employer, may offer a no win no fee or try to cap or fix those fees.

Employers use Settlement Agreements as a means of preventing complaints to a tribunal against them as you are effectively waiving your rights by signing one. It follows that even where an employer has followed a fair process, during a grievance or disciplinary hearing many still ask an employee to sign a Settlement Agreement to prevent a later claim for unfair dismissal or discrimination.

Being offered a Settlement Agreement can be beneficial to you as not only will you be granted compensation but this will be subject to an agreed timescale and confidential. You also get the chance to have a job reference attached to the Settlement Agreement which you have agreed in advance. This gives you peace of mind about what will be said about you to third parties. This coupled with clauses of confidentiality and clauses preventing either party from making disparaging remarks about the other secures your position. So a Settlement Agreement is a preferred means to conclude an employment dispute or termination.

Our employment lawyers also, whilst addressing your Settlement Agreement, may be able to negotiate the amount being offered in the Settlement Agreement and – or make the terms far more advantageous. Many employers are receptive to reasoned arguments if this means a swift resolution and avoiding a tribunal claim. Settlement agreement terms are not always final and can be negotiated.

Before arranging to meet with the employment solicitor ensure you have a copy of your employment contract, staff handbook and policies and any communications that are relevant, commission or bonus reviews or reports or agreements and any evidence you wish to go through to strengthen the solicitors position to increase or improve your Settlement Agreement terms.

We can often meet you the same or next day, but you need to know what timescales you are working with. Be this a date set by your employer, staff handbook deadlines, maybe a statutory grievance deadline or appeal date. We can explain the deadlines for unfair dismissal and redundancy and your contract and handbook should contain actual employer specific dates for appeals, disciplinary procedures and grievances.

For more information contact us…

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