Settlement Agreements

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Pay attention to the detail

A settlement agreement is a legally binding agreement between an employee and their employer, which once signed they are obliged to comply with. They are commonly used by employers when they are managing redundancies or where there is a potential dispute with an employee and may follow a ‘protected conversation’. These are however becoming more commonplace in other scenarios and when agreements as to departures have been agreed.

Legally binding contract

Settlement agreements become 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 once signed. Under the various employment legislations applicable to Settlement Agreements, the agreement must be in writing and they may include some form of payment to the employee and possibly a reference. The Employee must also obtain legal advice as to the implications and effects of the terms of the Agreement they are entering into.

Settlement agreements for employees

As stated above, 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 a contribution towards the independent legal advice if you sign a settlement agreement without getting independent legal advice first, the terms are unlikely to be enforceable and the Employee would then still be able to pursue an employment tribunal claim.

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.

How we can help

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].

Helen Townsend LLB

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