Settlement Agreements are frequently used in an employment context, usually when an employment relationship is coming to an end.
But what do employers actually need to know about them? We’re here to fill you in on all the basics!
What is a settlement agreement?
Settlement agreements are a legally binding contract between an employer and an employee. Usually, the employer will pay the employee a sum of money in exchange for the employee agreeing not to bring legal action against them, or to withdraw legal action that has already been started. Often, settlement agreements will be used to end the employment relationship.
When are settlement agreements used?
Settlement agreements are usually used in two circumstances:
- When a dispute has arisen between an employee and an employer, usually resulting from termination, but sometimes relating to matters that arose during employment.
- When an enhanced package is being offered aspart of an exit – usually in cases of redundancy.
The benefits of a settlement agreement
Settlement agreements allow both parties to move on from a dispute. Employers benefit because a valid settlement agreement will prevent an employee from bringing legal proceedings against them. Employees benefit because they get money!!
Key things to bear in mind when entering into a settlement agreement
- A private settlement agreement (i.e., not a COT3 which is a form of settlement used once formal legal proceedings have commenced) requires the employee to take independent legal advice – this is a must and cannot be circumvented.
- It is standard practice for employers to pay a contribution towards the employee’s legal advice, although it’s not a legal requirement that they do so.
- Employers cannot use settlement agreements to ‘gag’ employees, i.e., to prevent them speaking up about wrongdoing. Settlement agreements can contain confidentiality provisions, but in order to be binding they must not seek to prevent an employee from blowing the whistle, or otherwise reporting wrongdoing.
- Settlement agreements can only be used to settle existing disputes between the parties, or cover events that have already happened. They cannot be used to settle future claims – i.e. claims the parties weren’t aware of when they entered into the agreement.
- Settlement agreements can be complicated, and it is important to get them right. Always seek legal advice if you are looking to enter into a settlement agreement.
How we can help
- draft a Settlement Agreement for you;
- provide you with advice in relation to an existing draft Agreement;
- negotiate terms on your behalf.
Contact us now if you 're an employer needing help with a settlement agreement.