Settlement Agreements: An Employer's Guide

Settlement Agreements: An Employer’s Guide

What is a settlement agreement?

A settlement agreement (formerly known as a compromise agreement) is a legally binding agreement between a business and an employee under which the employee agrees to settle their potential claims and in return the employer will agree to pay financial compensation. Sometimes the agreement will include other things of benefit to the employee, such as an agreed reference letter.

Claims which can be settled include Unfair Dismissal and Discrimination.  

There are a number of statutory claims that cannot be settled by entering into a settlement agreement, including some types of:

• Personal injury claims.
• Pension claims.
• Claims following the transfer of a business.

When are they appropriate?

An employee can make a claim against a business under both their contract of employment and under statute. In many cases, a business may want to make a payment to an employee in return for an effective waiver of their potential claims. Businesses can enter into an agreement with an employee to settle potential claims when they are still working for the business, but in most situations, their employment will have ended (or be about to end). Although it is usual for compromise agreements to be entered into where employment has terminated (or is about to terminate), it is possible to enter into one where employment is continuing. Although it is usual for compromise agreements to be entered into where employment has terminated (or is about to terminate), it is possible to enter into one where employment is continuing. Unlike contractual claims, which can be waived by entering into a contractual waiver of such claims, statutory claims can only be waived in prescribed ways, one of which is by means of a compromise agreement Although it is usual for compromise agreements to be entered into where employment has terminated (or is about to terminate), it is possible to enter into one where employment is continuing. Unlike contractual claims, which can be waived by entering into a contractual waiver of such claims, statutory claims can only be waived in prescribed ways, one of which is by means of a compromise agreem

Legal Requirements

For a settlement agreement to be legally binding, there are a number of conditions that must be met inlcuding:

• The agreement must be in writing.
• The agreement must relate to a particular complaint or particular proceedings.
• The employee must have received legal advice from a relevant independent adviser (for example, a qualified lawyer or union official) on:
• the terms and effect of the proposed agreement; and
• its effect on their ability to pursue any rights before an employment tribunal.

Possible content of a settlement agreement

Other than the legal requirements listed above, the contents of a settlement agreement are largely at the discretion of the business and the employee involved. Examples of common clauses include:

• Compensation for loss of employment.
• Contribution to legal fees.
• Waiver of claims by the employee, including warranty that the claims listed are the only claims which the employee has against the employer.

Confidential information

Protecting confidential information is usually crucial to a business and therefore settlement agreements often contain confidentiality provisions, you solicitor can advise you in relation to these to ensure they are enforceable and sufficiently protect your business.

 

Gamlins are Employment Law specialists based in North Wales with a wealth of experience advising employees and businesses across the region.

 

Elissa Thursfield elissa.thursfield@gamlins.co.uk