What is a Settlement Agreement?

Author:
Joy Drummond
Partner, Employment Law Solicitor
Date:
24/04/2019

A Settlement Agreement is an agreement by an employee or worker to give up potential claims they may have against their employer in return for extra payment or other advantageous terms.

For the employer to be able to enforce a Settlement Agreement against the employee/worker to prevent them bringing Employment Tribunal claims the agreement must meet certain requirements.

One of these requirements is that the employee/worker has independent advice on the meaning of the agreement and how it affects their rights. For that reason the employer usually makes a sufficient contribution to the costs of this advice so that the employee/worker does not have to pay for this service.

The employee/worker should not agree to give up their rights unless the employer is paying them more than their strict legal and undisputed entitlement, or in some other way going beyond what they have to do legally for the employee/worker.

It may well be the case that an employee doesn’t have any claims against their employer. In this case, the employer may use the Settlement Agreement just to make entirely sure that a claim or claims can’t be brought against them.

Settlement Agreements can also be offered where there’s a potential dispute between the employer and employee. For instance, an employee may have an unfair dismissal or discrimination claim. The employer will therefore use the settlement as a means of preventing a claim (or claims being issued).

For free initial legal advice get in touch with our Employment Solicitors.

Call us on 08002605010 or request a callback and we will help you.

Why Should I Sign a Settlement Agreement?

A Settlement Agreement usually includes a termination payment or settlement figure or some other benefit. This acts as an incentive for an employee to sign up to the terms of the agreement. In some circumstances, it may be possible for the employee to negotiate an improvement on their initial settlement offer.

There is no reason why an employee/worker should sign away their rights unless the settlement offer is more than they’re legally entitled to.

When Can a Settlement Agreement be Offered?

The law is quite flexible on this point. A Settlement Agreement can be offered by the employer at any stage. It’s also open for employees to start settlement negotiations with their employer whenever they like.

Common scenarios include where there is a redundancy situation or re-structuring or where an employee is undergoing an absence of performance management process and no longer wants to work for the employer. In this type of situation, the employee could approach the employer with a proposed settlement option or the employer could offer settlement terms as an alternative to both of them having to go through what could be a lengthy procedure.

Without Prejudice Settlement Discussions

As a general rule, settlement discussions or negotiations leading to a Settlement Agreement are protected or “without prejudice” in nature. This means that they can’t be brought up before a Court or Employment Tribunal in any later proceedings if terms are not agreed. For example, if your employer was to offer you £20,000 as a settlement, which could be seen as an acknowledgement that it hasn’t followed the correct process, this doesn’t mean that you could use this against your employer in the Employment Tribunal or Court.

When conducting settlement negotiations, there are certain rules that an employer should follow. More specifically, an employer shouldn’t discriminate against the employee, nor should they put undue pressure on the employee to agree the settlement terms.

This could involve the employer telling the employee that they’ll be dismissed if they don’t agree to the settlement terms. In these circumstances, it may be possible for the employee to raise the employer’s unreasonable conduct in any later Court or Employment Tribunal proceedings.

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The employer will insist that the employee takes independent legal advice because otherwise the employer will not be able to enforce it to prevent the employee/worker bringing employment tribunal claims. This is to ensure that employees know what they’re signing up to before entering into a Settlement Agreement.

What are My Options as an Employee?

As an employee, there are three options available:

      • Sign up to the Settlement Agreement in its current form
      • Go back to the employer and negotiate an increased offer    
      • Refuse to sign the agreement

In the event a Settlement Agreement isn’t signed or finalised, then the employee will retain their legal rights and will not be prevented from being able to make any potential claims against their employer.

How Simpson Millar Can Help You

Our Employment Solicitors have years of experience advising on Settlement Agreements for employees. From an early stage, we’ll go through any potential claims that you could have against your employer. We’ll also advise on the amount of compensation that you may be entitled to in the event your claim is successful.

 We’re also highly experienced in negotiating exit and termination packages for employees. This often results in improved settlement offers for employees. Whilst we can’t guarantee that your employer will increase their initial settlement offer during negotiations, we will fight your corner and support you throughout the whole process.

Often the Settlement Agreement prepared by the employer is worded to the disadvantage of the employee/worker, either deliberately or due to poor drafting. We can spot these problems and usually manage to persuade the employer to rectify them, or at least improve the final agreement.

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