Background

Settlement Agreements

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Pay attention to the detail

A settlement agreement is a legal contract between employee and employer and both have to stick to it. They are commonly used by employers when they are managing redundancies or there is a potential dispute with an employee and may follow a ‘protected conversation’.

Legally binding contracts

Settlement agreements are legally binding contracts that relinquish the rights of the employee to make a claim to an employment tribunal or court as a result of their employment or its termination. The agreement must be in writing and they may include some form of payment to the employee and possibly a reference.

Settlement agreements for employees

There is a legal requirement for an employee to take advice on the terms of the agreement which should cover the meaning and effect of it. Your employer will usually pay for independent legal advice for the reason being that if you sign a settlement agreement without getting independent legal advice first, you’ll still be able to go to an employment tribunal.

As an employee, you should be given time to consider the agreement and the Acas Code of Practice on settlement agreements specifies a minimum of 10 calendar days unless the parties agree otherwise.

Settlement agreements for employers

As an employer it is worth taking advice on the terms of a settlement agreement in individual cases. Despite their ‘protected’ nature, the discussions leading to the settlement can be difficult to manage.

Settlement agreements can include additional or special provisions or simply to agree wording for references and announcements. They can lead to questions about tax treatment of payments and indemnities that may be required and provides the employer with the opportunity to protect the confidential information of the business as well as its reputation.

In all cases it is vital to pay attention to detail and to take advice especially when more than a standard approach is required.

If you need advice on an employment issue and would like to have a confidential discussion about it or would like further information, contact our Employment Team on 01733 882800 or email [email protected].


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