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 payment in order to reach an amicable settlement and in recognition of the fact that the employee cannot take any future action against them.
Those rights include, amongst many others, the right to claim unfair dismissal, notice pay, unpaid wages, holiday pay, a redundancy payment, failure to consult on redundancy, breach of contract, sex discrimination, age discrimination, race discrimination, disability discrimination and various rights arising under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
Our Employment Law specialists regularly negotiate the terms of settlement agreements, drawing on our experience of helping both employees and employers to anticipate the demands of the other side. We will also ensure that the wording of the agreement is adequately drafted, in order to provide you or your business with the necessary protection you require.
When are Settlement Agreements Required?
Settlement agreements are used in many different scenarios, ranging from where an employee is receiving an enhanced redundancy payment, to where there is a ongoing 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 under 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. This is a significant waiver by an employee, who should receive independent legal advice on whether the agreement appropriately reflects their circumstances, and whether they are receiving an adequate amount of compensation. The employer will usually make a contribution towards the employee’s legal fees in obtaining advice on the agreement.
Settlement Agreement Terms
Both employers and employees will need to give careful consideration 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);
- confidentiality; and
- legal fee contribution.
What Makes a Settlement Agreement Valid?
In order to be valid:
- the agreement must be in writing;
- the agreement must relate to particular employment claims;
- the employee must have received advice from a relevant independent adviser (usually a solicitor) as to the terms and effect of the proposed agreement and, in particular, its effect on their ability to pursue their rights before an employment tribunal;
- the adviser must have in place a contract of insurance when they give the advice;
- the settlement agreement must identify the adviser; and
- the agreement must state that the Employment Law conditions are satisfied.
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At Owen White & Catlin, we have a dedicated team of solicitors who have vast experience assisting clients to negotiate and agree settlement agreements. To find out more, please contact us using our online