A settlement agreement is a binding legal agreement between an employer and an employee under which, the employee waives and relinquishes all legal rights to pursue any claims against a former employer in consideration of the provision of a payment and/or certain benefits and/or a reference.
An employer will offer a settlement agreement under a wide variety of situations. It could be halfway through a disciplinary or a grievance process, or where the employment is about to be or has been terminated. It is a flexible tool used by employers in circumstances where they have any concern that an employee might pursue a claim either through the courts or through an employment tribunal.
The timing of the offer is absolutely vital. Employers can get it very wrong if they do not follow the proper procedure before introducing a settlement agreement. This involves the ‘without-prejudice’ rule and Section 111A of the Employment Rights Act. The order in which matters are dealt with can be essential.
Many terms within a settlement agreement are generic and standard. The terms of settlement, i.e. the provision of a settlement sum or benefits or a combination of both and a reference, will all be personal to the particular employee. The employer will sometimes want additional safeguards with regard to confidentiality, secrecy, instalment payments, and/or restrictive covenants or continuation of existing covenants.
Normally an employer will make it financially attractive or provide another incentive for an employee to sign an agreement. However an employee cannot be forced to sign an agreement. This is because prior to signing, the law requires the employee to take independent legal advice (normally from a solicitor), on the terms and effect of the agreement. Normally, the employer must be prepared to pay a reasonable contribution towards the employee's legal costs of taking that advice.
The main benefit is that an employer can be certain that, subject to the employer complying with its terms of the agreement, the employee cannot bring legal proceedings against the employer and that if they tried to do so, the employee would suffer financially.
If you need to create a settlement agreement or if you would just like some advice on what you can and cannot include in a settlement agreement, call to speak to one of our expert employment law solicitors today.
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