What Should You Do If You Have Been Presented With a Settlement Agreement?
Updated: Jun 28
If your employer has presented you with a settlement agreement, what is it and what should you do? In this article we provide some initial information on settlement agreements and the steps you should take if you are requested to sign one.
What is a settlement agreement?
A settlement agreement (previously known as a compromise agreement) is a legally binding contract and resolution between employer and a current or former employee, which settles a dispute that the employee or employer may have. The employee is signing an agreement that waives and settles all possible claims against their employer for unfair dismissal, breach of contract or discrimination for example. Once signed, it will not be possible to make any claims to an Employment Tribunal in the future.
Along with other mutually agreed terms, there is often a settlement payment involved, which is usually made shortly after termination of employment. The agreement will include a list of the claims that are being waived and set out other important details that govern the agreement and most likely include a confidentiality cause, meaning that details of the agreement or the terms must not be discussed or made public.
However, settlement agreements do not always need to be in connection with ending the employment, they can also be used where the employment is ongoing, but both parties want to resolve a dispute that has occurred between them or to settle a grievance.
Before a settlement agreement is legally binding, you must receive independent legal advice and your solicitor will sign a certificate confirming you have received this.
When is a settlement agreement used?
Settlement agreements can be used in a number of situations or when a dispute arises, and are normally offered in the following circumstances:
· Redundancy situation
· Performance management at work
· Long-term sickness
· Means of settling a grievance
However, employers must follow the correct procedure and if not, reasons for a settlement offer may form the basis of a claim of unlawful discrimination or victimisation. If there are no valid reasons for your employer offering you a settlement agreement or it is an attempt to encourage you to retire or if you are pregnant for example, it is important you understand your rights as an employee and the steps you should take before signing a settlement agreement.
The settlement payments or severance package
When you enter into a settlement agreement, it will include details of a severance or employment exit package. It is important that there is a clear breakdown of the payments which have been agreed and if any are to be paid free of tax. There are many things to take in to consideration regarding the settlement payment, and it is important that you understand exactly what you are entitled to before agreeing what these will be. Matters to consider include:
· Notice, Holiday and Benefits.
· Length of Employment.
· Bonus and Commission Payments.
· Shares and Options.
Why do I need legal advice about a Settlement Agreement?
There are a number of statutory requirements that must be fulfilled before a settlement agreement becomes valid and legally binding. Importantly, one of these obligations is that you must receive legal advice on the terms and effect of the agreement from an independent solicitor (or another adviser specified in the Employment Rights Act 1996, such as a properly certified trade union official). That adviser must be clearly identified in the written agreement and their advice must be covered by insurance.
If done properly, settlement agreements can be the most amicable way for an employer and employee to conclude a dispute without the need for either side to resort to further legal action or employment tribunal. However, legal matters of this nature and the law relating to them can be complex, so it is vital that you seek professional advice to discuss all of your options and to ensure you fully understand your legal rights.
Employment Law and Settlement Agreement Solicitors
If you would like to discuss your rights regarding a settlement agreement, our specialist employment law solicitors have the knowledge and expertise to ensure you receive the best possible legal advice. We can help negotiate the best terms on your settlement agreement and termination package and will guide you through the entire process.
Contact us on 02089747490 or firstname.lastname@example.org to discuss the advice you need, and we will provide you with further and specific advice tailored to your circumstances. Please ask to speak to our employment and dispute resolution team.
Please note that this article is meant as general guidance and not intended as legal or professional advice. Updates to the law may have changed since this article was published