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Settlement agreements – everything you need to know

So….your employer wants to talk to you about a settlement agreement.

What do you need to know before embarking on discussions and, crucially, before signing anything?

This article outlines the key points to help you make sure that the agreement you get is the one you want and deserve.

What is a settlement agreement?

Until July 2013, they were known as 'compromise agreements'. The name changed to 'settlement agreements' in a bid to better reflect what they are all about - a legally binding way to bring an employment relationship to an end or to resolve a dispute in the workplace.

Their aim is to try to avoid ending up at an Employment Tribunal - a costly, time consuming and often extremely stressful way of resolving problems. They are entirely voluntary and you can, if you want, refuse to enter into any discussions at all.

When might a settlement agreement be used?

There are many different scenarios when a settlement agreement, which must be in writing, can provide the best way forward including:

  • Redundancy
  • Voluntary redundancy
  • Voluntary severance
  • During a disciplinary procedure
  • Following a disagreement between two employees after the formal grievance procedure has begun
  • When there have been allegations of poor performance or misconduct
  • When your employer wants to change a term of your contract in a way that could otherwise be breach of contract

What advantages does a settlement agreement have over going to an employment tribunal?

As well as saving time, money and hassle, being able to negotiate a settlement agreement can be beneficial.

For example, you may be able to get an apology, an agreed reference or specific benefits like being able to continue to use your company car for an agreed period or agreeing the wording of any announcement made to colleagues about your departure which a tribunal could not order.

You could also ask for outplacement support and advice to help you get another job, for example CV help, or for restrictions on your contract about working for competitors, for example, to be lifted.

Who pays for the settlement agreement?

Usually, the employer foots the bill including at least a contribution towards the employees' legal fees. Receiving independent legal advice is a key part of the process and something an employee must take not only to safeguard their interests but in order for any agreement to be considered legally valid.

Who can provide an employee with this legal advice?

You can use a solicitor or a barrister, a trade union official or someone from an organisation like the Citizen's Advice Bureau as long as they have been certified as competent to give the advice and have the relevant insurance.

What are the key features of a settlement agreement?

  • It is confidential
  • It must be in writing
  • It is entirely voluntary and there is no obligation to enter into one
  • It covers whether you will receive any compensation, for being made redundant for example, and how these payments will be made to you
  • Key clauses relate to termination dates and termination payments - things to remember here are whether to work a notice period, or take pay instead, as well as how the payment is worked out
  • Settlement agreements, once signed, are enforceable and if either party breaches a valid agreement, the terms can be enforced in the civil courts or an employment tribunal
  • In accepting a settlement agreement, you waive the right to bring any claims against your employer at an employment tribunal in the future, for example for unfair dismissal or discrimination

For legal help and guidance on any employment issues, please contact Wards Solicitors' employment team by phone or by popping into one our 11 local offices.