Settlement Agreements are essentially agreements under which an employee signs away all of their employment related claims and rights, in return for an enhanced payment when their employment is terminated. The company offers this ex gratia payment in order to reach an amicable settlement and in recognition of the fact that you cannot take any future action against them.
Those rights include, amongst many others, the right to claim unfair dismissal, unfair selection for redundancy, failure to consult on redundancy, or offer a redundancy notice, breach of contract, sex discrimination, age discrimination, race discrimination, disability discrimination and various rights arising under TUPE.
When are they required?
They are used in many different scenarios, ranging from where an employee is receiving an enhanced redundancy payment, to where there is a real dispute between employer and employee. When an employer wishes to terminate an employee’s contract, a Settlement Agreement can be used to outline all of the terms on which the person is to leave the employment.
The Settlement Agreement removes the right for the employee to take the matter to an Employment Tribunal. Therefore it is crucial that you ensure your future employment opportunities are not being restricted, and that you are receiving the correct amount of compensation. The employer will usually make a contribution towards the employee’s legal fees in obtaining advice on the agreement.
If you are offered a settlement agreement, you should take independent legal advice on the agreement as soon as possible.
Careful thought will need to be given to the terms of the agreement including:
- The amount of any severance/ex-gratia payments
- Tax, pensions and payment dates
- Shares and share options
- Post-termination restrictive covenants
- Agreed reference
- Announcements (internal and external)
- Legal Fee contribution
Our employment specialists are able to ensure that the wording of the agreement is adequately drafted in order to provide you with the necessary protection you require and assist in negotiating the terms for all employees at all levels of seniority.