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Settlement agreement

The settlement agreement was introduced by the Enterprise and Regulatory Reform Act 2013. The aim was to provide employers with a tool to resolve disputes as cheaply and swiftly as possible, without tribunals or court cases.

What is a settlement agreement?

A settlement agreement is a contract that sets out terms to conclude an employment dispute. These agreements are usually associated with ending employment, however they may be used to settle any employment dispute. Settlement agreements were previously known as “compromise agreements”.

An employer may propose a settlement agreement in order to head off a potential claim at the employment tribunal. This might arise as a result of workplace bullying or an issue that they would rather didn’t become a matter of public record.

An employer can also use a settlement agreement as an alternative to redundancy, disciplinary or performance management procedures.

When signed and agreed, a settlement agreement offers full and final settlement. As such, both parties waive their rights to pursue future claims against the other. Employers normally want these agreements to be confidential and will include a clause to this effect. This means that you cannot discuss the settlement terms with anyone.

What does a settlement agreement include?

A normal settlement agreement will include:

  • Any notice periods or gardening leave
  • Payments to be made and their tax status
  • Details of continuation of any benefits that have been negotiated
  • Clauses waiving the right to pursue an employment law claim against the employer after the agreement is signed
  • Clauses permitting the employer to recoup some or all of the settlement consideration if the employee breaches the agreement
  • Confidentiality clauses
  • Details about any employment references that are to be given

Taking independent legal advice

If you are given a settlement agreement, you must take independent legal advice. The employer usually pays for it.

The scope of independent legal advice is only to ensure you understand the settlement agreement. It is not to provide advice on the merits of the agreement, or whether other options may lead to a better result.

When obtaining independent legal advice, your advisor will inspect the agreement to ensure it is properly drafted. They will explain the various clauses to you, so you can easily understand what you are agreeing to.

If you need independent legal advice on a settlement agreement, we can help. Simon Legg is our in-house settlement agreement expert. Simon is a solicitor with over 20 years experience helping clients make sense of settlement agreements to ensure they are not being sold short by their employer. Call Simon Legg today on 01253 873481 to discuss your settlement agreement.