What is a Settlement Agreement?

Anita North
National Head of Employment

A Settlement Agreement is a legally-binding contract between an employer and employee which can be used to bring the employment relationship to an end, or resolve a problem or dispute between both parties during the employment. It can be a quicker and cheaper solution than taking a claim to an Employment Tribunal.

A Settlement Agreement will include a lump sum payment from the employer and in return, the employee will make certain promises, including keeping the agreement confidential.

Once you sign a Settlement Agreement, you lose your right to make certain claims against your employer, so it’s really important that you know exactly what it is you’re agreeing to.

If you’d like advice about a Settlement Agreement, get in touch with our Employment Law Solicitors and we’ll be happy to talk you through your options.

Call us on 0808 258 3531 or request a callback

What is a Settlement Agreement used for?

Employers will often choose to resolve any issues through a Settlement Agreement, to prevent an employee from taking their complaint to an Employment Tribunal, or employees can choose to start negotiations themselves.

Usually a Settlement Agreement will be used:

      • To resolve a potential dispute, such as an unfair dismissal or discrimination claim
      • As an alternative to redundancy
      • During the restructuring of a business
      • In instances of poor performance

Most employers will pay for you to get independent legal advice, or at least contribute to your legal fees, and this should be made clear by your employer when they send the Settlement Agreement to you.

What should be included in a Settlement Agreement?

All Settlement Agreements will vary as they will depend on the situation, but to be legally valid, they must:

        • Be in writing
        • Specify exactly what claims are excluded from being made once it is signed
        • Be signed by the employee
        • Confirm that you’ve had independent legal advice from the legal advisor stated in the agreement
        • State that all relevant legal requirements have been satisfied

Some of the main provisions that are included are:

          • Termination Payments – The agreement should state the payment you’re going to receive, and any other payments, such as outstanding accrued holiday pay and any payment being made in lieu of your notice period
          • References – If a reference wasn’t included, you should still ask for one as part of the settlement terms. For example, this might include confirmation of your start and end dates, and your job title
          • Confidentiality Clause – It’s likely that your employer will want you to keep the details of your agreement private, by using a confidentiality clause. Usually, this will include an exclusion for things such as whistleblowing or where a disclosure is required by law. It’s important that any confidentiality clauses are mutual between you both, so that your employer is also required to keep the agreement confidential

Do I have to sign a Settlement Agreement?

No, you don’t have to sign a Settlement Agreement if you’re unhappy with the terms. As an employee, you have three options:

            • You can sign the Settlement Agreement as it is
            • You can negotiate the terms with your employer
            • You can refuse to sign the agreement altogether

If the agreement doesn’t meet the legal requirements and is therefore invalid, you could still choose to take your claim to an Employment Tribunal.

Help from an Employment Law Solicitor

It’s really important to get specialist legal advice before signing a Settlement Agreement. While your employer can arrange this for you with an independent adviser, our Employment Law Solicitors are also on hand to help you.

We’ll review the agreement and explain the terms in detail so you know exactly what it is you’re agreeing to. We can also negotiate on your behalf to make sure that you’re getting the best possible outcome.

Sometimes a Settlement Agreement drafted by the employer can be worded in a way that disadvantages you as the employee, either deliberately or because of poor wording. Our Employment Law Solicitors can spot these issues and negotiate with your employer to resolve them and improve the final agreement.

Get in touch with our Employment Law Solicitors today for confidential help and advice.

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