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Settlement Agreements

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Settlement Agreements

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Settlement Agreements (formally known as Compromise Agreements) are commonly used as a means of resolving disputes between an employer and employee and terminating the employment relationship.

Under Settlement Agreements, the employee receives a financial payment in exchange for agreeing that they will not pursue an employment related claim against the employer. This type of Agreement can effectively protect the employer but there are legal requirements for the Agreement to be binding on the employee.

If the employee does not receive independent legal advice in relation to the terms of the Agreement then a claim can be pursued in the Employment Tribunal. For that reason, we recommend that you obtain legal advice before agreeing severance terms with an employee.

What is a Settlement Agreement?

A legally binding document prepared by your employer setting out all the terms (including any financial settlements) on which your employment relationship will come to an end.

Why do employers offer Settlement Agreements?

Some issues at work can be resolved quickly through communication and internal company procedures but in cases where this is not possible, a settlement agreement is an effective way of ending the relationship between an employer and employee without resorting to tribunal proceedings. Employers usually offer Employment Settlement Agreements to stop employees from bringing any potentially costly or uncertain claims against them in the courts or at an employment tribunal.

Can an employee suggest a settlement agreement?

Yes. It is possible to approach your employer on a “without prejudice” (off the record) basis to investigate whether they would be willing to negotiate the terms of your exit from the business.  This may be an appropriate course of action if you

  • are unhappy at work,
  • have received an unsatisfactory outcome to a grievance and feel unable to continue in the work environment;
  • face disciplinary action or performance management;
  • believe you may have grounds to bring a claim against your employer in the Employment Tribunal,

Why use a Solicitor specialising in Settlement Agreements?

Our employment solicitors are acknowledged in Legal 500 and Chambers & Partners as being highly experienced in settlement agreements. Where appropriate we will negotiate the terms of an Agreement  on your behalf and ensure that your best interests are fully protected. These agreements are designed to draw an employment contract to a close or to make amendments to a contract in a fair and reasonable way. You should not be prejudiced as a result of the process.

What is a protected conversation?

The concept of a protected conversation was introduced in 2013 enabling an employer to enter into discussions  (“out of the blue”) with an employee with a view to terminating their employment under a settlement agreement, without the parties being able to rely on the details of the conversation as evidence in an unfair dismissal claim.  The purpose of the legislation is to enable employers to facilitate the exit of underperforming staff without the necessity of going through a lengthy formal performance management process which can be stressful for both parties.

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Who benefits from Settlement Agreement?

Although it may appear that Settlement Agreements only benefit employers, with expert advice from our Settlement Agreement solicitors here in Leeds, you can ensure that all issues between you and your employer are resolved and you receive a fair and appropriate settlement.

My employer has presented me with a Settlement Agreement but I am unsure whether the sum offered is reasonable. 

We are able to discuss the terms of the Employment Settlement Agreement with you over the telephone or arrange a meeting if you prefer. The offer made will depend upon the circumstances leading up to the discussions and the relative strength of any claim you have. If you have not secured another job to go to, as a general rule of thumb, a payment equivalent to six months’ salary would be considered a good settlement. For a more accurate assessment please use our calculator (settlement agreement calculator link?).

I am unhappy with the settlement offer made by my employer. Is there anything I can do? 

You are not obliged to enter into a Settlement Agreement if you do not wish to do so. If you would like to negotiate the terms of the Settlement Agreement it is possible to make a counter offer. If negotiations are unsuccessful, depending upon the circumstances, the employee can decide whether they wish to issue a claim in the Employment Tribunal. The time limit for bringing such a claim is three months less one day from the date of termination/last act of discrimination. If the discussions regarding the Settlement Agreement are “off the record” they cannot usually be referred to in any legal proceedings.

Will I be responsible for the legal costs for advice on a settlement agreement? 

In order for a Settlement Agreement to be binding it is a requirement that you receive independent legal advice. It is common practice for the employer to contribute to your legal fees and the amount of the contribution should be set out in the Settlement Agreement. If the contribution offered is unlikely to cover the cost, we shall try to obtain an increase from your employer in the first instance.

What does a Settlement Agreement usually consist of?

Usually a document consisting of several pages outlining issues such as:

  • The details of any severance payment you are to receive at the end of your employment.
  • Settlement of any claims the employee may have against the employer.
  • Assurance by the parties that no future legal action regarding your employment relationship will be pursued.
  • The details that will be provided to other employers after your departure.
  • The reference you will receive from your employer (we usually agree the wording of any references).
  • Whether certain matters are required to be kept confidential.
  • Whether there will be any restrictions placed on the employee after leaving the employer.

Can you change your mind once a Settlement Agreement is signed?

Although you do not have to accept a Settlement Agreement offered by your employer, once you have signed the document, it is seen as full and final settlement of any potential claims you may have against your employer.

If all the required formalities are fulfilled, such agreements are legally binding agreement and cannot be revoked.

For these reasons it is a legal requirement that you receive independent legal advice from a qualified solicitor who is adequately insured.

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