Posted on September 21, 2021
If you have received a settlement agreement or you are considering proposing one, read this before you move forward.
A Settlement Agreement (formerly known as a Compromise Agreement) is a legally binding agreement between you and your employer. This usually provides for a severance payment by the employer in return for your agreement not to pursue any claims in a Tribunal or a Court.
The employer will usually require you to keep the terms, for example, the amount and the surrounding circumstances of your contract’s termination, confidential.
A situation in which you might consider using a settlement agreement could be, for example, where an employee is not performing well, and neither party wants to go through a long capability process, and both employer and employee are willing to bring the employment to a quick end on agreed financial terms.
A settlement agreement is usually used in connection with ending the employment, but it doesn’t have to be. A settlement agreement could also be used where the employment is ongoing, but both parties want to settle a dispute that has arisen between them.
Typically, a settlement agreement’s purpose is to confirm termination of someone’s employment and ensure that the employee will not bring legal claims against the employer in return for compensation, usually financial.
As settlement agreements are legally binding, voluntary and subject to negotiation, it is important to receive settlement agreement advice from a specialist solicitor before presenting a settlement agreement to an employee or, as an employee, agreeing to the terms of one.
In most instances, a settlement agreement is drawn up to achieve an amicable and fair separation between employer and employee, i.e., to draw a line under a period of employment. Usually, this is instigated in response to concerns over employee performance or conduct.
Nevertheless, there are other types of settlement agreement scenarios:
If you are being made redundant, your employer may offer you a redundancy settlement agreement. The redundancy process can be complex, time-consuming, and costly. Therefore, it is common for companies to offer a redundancy settlement agreement to reduce the risk of future Employment Tribunal claims, to minimise the consultation process, and unsettling other employees. Click the link for further information on redundancy and restructuring.
If you bring an unfair dismissal claim or mistreatment claim against your former employer, they may offer you a settlement agreement to stop the claim from being brought to the Employment Tribunal to avoid the subsequent costs, management time, and negative publicity.
If you have a long-term health issue impacting your work, your employer may offer you an ex-gratia (goodwill) payment in return for your resignation. They may ask you to sign an employment settlement agreement to avoid disability claims being brought against them in the future.
A settlement agreement may be used by an employee to secure non-financial payments in their employment package, such as a company car or private health insurance.
If you have raised a valid grievance with your employer, they may offer you an employment settlement agreement in order to keep the grievance confidential. Find out more about raising grievances here.
For more information on settlement agreements for employers, click here.
For more information on settlement agreements for employees, click here.
While settlement agreements can be used to settle a number of claims, there are some that they cannot cover.
Claims that cannot be waived include:
Many of these claims ultimately result in an employment tribunal.
The Settlement Agreement must:
As an employer, you can offer a settlement agreement for many reasons. Although, usually, it is because something has gone wrong at work. An employee may disagree with the way someone at work treats them. Or they may have been harassed and discriminated against. Additionally, they may have been dismissed or managed out of their job.
A Settlement Agreement would also be used where there is a dispute between an employer and employee – as a means of bringing that dispute to a close. In other words, it becomes the document that sets out the final terms that have been negotiated against the threat of legal claim against an employer.
Of course, employees are under no obligation to accept a Settlement Agreement and should and can only do so once independent legal advice has been obtained.
Once an employee has been made an offer by their employer, they need to respond, and they need to do that in writing.
If you would like Davenport Solicitors to support you with further advice on Settlement Agreements or to speak to our specialist Employment Law Solicitors, we welcome you to visit our contact us page or email us at firstname.lastname@example.org or give our expert lawyers a call on 02079 036888.
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