Employees: should you enter into a Settlement Agreement?

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What is a settlement agreement?
Settlement agreements are legally binding documents that can be used by an employer to allow an employee to end an employment relationship in a mutually acceptable way. Settlement agreements can also be used if an employee wishes to continue in employment whilst resolving an issue in the workplace. A financial settlement sum is usually offered in exchange for waiving rights to bring a claim at the employment tribunal.
When might a settlement agreement be used? 

  • Redundancy;
  • Concerns about your conduct, attendance, or performance; or
  • If a complaint has been made against an employer.

What are the advantages of a settlement agreement for an employee?

Settlement agreements can bring a swift end to an employment relationship that is no longer working, avoiding the possible stress, expense and time of a claim at the Employment Tribunal.  

What are the advantages of a settlement agreement for an employer?

A settlement agreement may have been offered by an employer following, for example, a complaint that an employee has made against their employer. It may be that the employer has offered the settlement agreement in response to the complaint in an effort to draw the complaint to a close early. This may be an attractive and private option for an employer to try and settle a potential dispute that could carry reputational damage.

What standard terms are often in a settlement agreement?

Termination date: if the agreement is to end employment, a termination date will need to be agreed. 

Payment: This is usually split into two payments; a compensation payment (for loss of employment) and a contractual payment (usually a payment in lieu of notice). The compensation payment can be free of tax and National Insurance up to £30,000.00. 

Company property: such as a laptop, mobile phone, company car and/or work pass will likely need to be returned to the employer. 

Confidentiality: settlement agreements are often confidential. If a confidentiality clause is included, it is important to note that this clause would not apply to protected disclosures under the Employment Rights Act 1996. There will often be exclusions for this such as a spouse and advisers.

Reference: employees can negotiate an agreed reference with an employer. This can be an advantage to an employee if they would like future employers to obtain a basic reference from their current employer. However, most references are now basic and will contain only the dates worked at the company and the job title.

Do I have to accept a settlement agreement?

Employees are not obliged to enter into a settlement agreement. It is important to note however, anything said in settlement discussions would not be able to be disclosed if negotiations failed and the employee later chose to pursue a claim at the Employment Tribunal.
How can we help?

Where an employee is faced with a settlement offer from their employer, we can consider the draft agreement and meet with the employee to explain the terms of the documentation. The employer will pay the employee’s cost of a solicitor’s meeting for this purpose. If the circumstances leading to the settlement agreement indicate that the employee may have a strong claim at the employment tribunal, which if successful could lead to higher compensation award than that offered by the employer, we can advise you accordingly and if instructed to do so, negotiate with the employer to try and agree a higher settlement sum.  

A settlement agreement must be accompanied by an adviser’s certificate. This would need to be signed by either a solicitor (or a trade union representative authorised to do so) to be legally binding.

Nick Howell helps clients with settlement agreements for both employers and employees. If you would like advice in this respect, please contact Nick at AMD’s Henleaze office on 0117 962 1205 or by email to NickHowell@amdsolicitors.com

This article is provided for general information purposes only and represents our understanding of the relevant law and practice as at the date of uploading. This article should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.

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