A settlement agreement (formerly known as a ‘compromise agreement’) is a legally binding agreement, designed to enable an employer and employee to settle any employment claims or breach of employment contract claims that arise.
There are very specific requirements for a settlement agreement and certain conditions must be met. The employee must take advice from an independent adviser (usually a solicitor) about the agreement and the claims he/she is giving up. Due to the fact that a binding settlement agreement is of more benefit to the employer than to the employee (because it prevents the employee bringing claims in the future) it is usual for the employer to contribute to the employee’s legal fees.
Settlement agreements can be offered to an employee at any time during their employment with you but do not have to be accepted; the contract is entered into voluntarily.
A settlement agreement is usually proposed to an employee that you may wish to discipline or dismiss, before undertaking any formal proceedings and will generally include some level of payment and a reference.
Offering a settlement agreement is typically considered by employers when they want to effect a clean break with an employee, as the biggest benefit to a business is that they are, for the most part, protected against that employee bringing legal claims against them. Once the employee has signed the agreement it is legally binding and they will have waived any rights to take their potential claim to a court or an employment tribunal.
The terms of the settlement agreement can be made on a confidential basis, meaning it’s existence cannot be used as evidence in any subsequent employment tribunal claim if a settlement cannot ultimately be reached.
How we can help
Our expert team of specialist employment solicitors can help you in a number of ways, we can:
- Simply provide advice on whether a settlement agreement is an appropriate option, explaining the terms, what it means to you and how it can protect your business
- Draft the agreement and provide accompanying letters for you to send to your employee or alternatively can deal with the employee directly on your behalf
- Deal with any negotiations with your employee if necessary, making sure that the terms of the agreement are in your best interests and help you finalise the agreement
If you would like more information or just want a confidential, no obligation chat about your options, contact our highly experienced team today.