Settlement Agreement for Employers

Settlement Agreements are frequently used in an employment context, usually when an employment relationship is coming to an end. 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.

When & why would you use a settlement agreement?

Settlement agreements are usually used in two circumstances, the first being when a dispute has arisen between an employee and an employer, usually resulting from termination, but sometimes relating to matters that arose during employment. The second instance is generally when an enhanced package is being offered as part of an exit – usually in cases of redundancy.

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!!

What should a settlement agreement consider?

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 before signing the settlement agreement– this is a must and cannot be circumvented. Without legal advice being obtained, the agreement is not legally binding.

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. They also shouldn't be complicated, and it is important to get them right.

In instances of redundancy, it's important to understand your employer obligations towards employees with more than 2 years continuous service to ensure the employee is being properly compensated.

How can we help?

We specialise in drafting settlement agreements and we can help negotiate the terms of the settlement agreement on your behalf, with your employees legal adviser. We help a variety of businesses such as AccelerComm, Energy Aspects and Togather navigate the ever-changing employment law world.

In need of HR or Employment Law support in the UK? Get in touch with our team.

How to get started

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