Are you an employee and need advice in relation to a settlement agreement you have been offered?
Are you a business owner or manager who has questions around settlement agreements?
Whether you are an employee or employer, our Employment Law solicitors can help.
- What is a settlement agreement?
- Is a settlement agreement the same as redundancy?
- What is included within a settlement agreement?
- When might a settlement agreement be used?
- When do settlement agreements become legally binding?
- What happens if you breach a settlement agreement?
- How can Smooth Commercial Law help me with settlement agreements?
Both employees and employers alike can utilise a useful legal tool called settlement agreements. These agreements can be used as a “clean break” away from employment, often giving the employee a generous payment, while also ensuring that the company are protected from any potential employment tribunals.
Settlement agreements can be used by employers when deciding to dismiss an employee or employees and they are legally binding. They can, however, be a little complicated for both sides, and it is imperative that a set of procedures are followed to protect both the employee and the business from any potential further claim.
If you are an employee and you want our legal experts to scrutinise the settlement agreement you have been given, our expert team can help. Likewise, if you are a business and have questions surrounding the procedures and any potential legal pitfalls that might crop up, our expert Employment Law solicitors are on hand to help. Our initial phone call is completely free.
What is a settlement agreement?
A settlement agreement is a legally binding contract between employer and employer. The agreement settles any potential claims that the employee may have against their employer after the termination of their employment, thus meaning that the company is protected from any tribunal claims down the line. The employee usually receives payment for this.
Once an employee agrees to the terms of the settlement agreement, they waive any right to make a claim to an employment tribunal or court, which is why it is vitally important to receive legal advice before signing one (in fact, it is legally required for you to receive independent legal advice). The agreement must be in writing and will often involve some form of payment to the employee, and sometimes a reference for their next employer.
Is a settlement agreement the same as redundancy?
No, settlement agreements and redundancy are slightly different. Making someone redundant involves terminating an employee’s contract on reasonable grounds. This means a business believes no claim can be brought against them. If, as an employer, you believe you have conducted a fair redundancy process, you can proceed without any form of settlement agreement.
They are not mutually exclusive, however. If an employer does decide to make an employee redundant, they can also offer them a settlement agreement. This may be offered in order for the former employee to leave “smoothly”, and also to protect the company from any potential future claims that may arise.
What is included within a settlement agreement?
For a settlement agreement to be legally binding, there are certain requirements. The settlement agreement must:
- Be in writing
- State specifically what claims are excluded from being made once it is signed
- Be signed by the employee
- Must confirm that the employee has had independent legal advice from the legal advisor identified in the agreement
- State that all legal requirements have been satisfied
Every settlement agreement differs in nature due to every circumstance being different. Having said this, there are some things which are usually included. These are:
- Information surrounding termination payments
- References, if requested
- Information on the confidentiality clause
- A termination of employment date
- A waiver and settlement of employment claims
- Practical issues like handovers, resignation of directorship, return of property
If you have received a settlement agreement from your employer and all of the above details are not present, we would recommend getting in touch for legal advice.
When might a settlement agreement be used?
There are a number of situations where an employee or employer might want to use settlement agreements to their advantage. Their main use is to avoid a long and drawn-out process of performance meetings, disciplinary hearings and/or redundancy consultations. It also provides a “clean break” from the employee, giving closure to the employer.
Below, we list a few examples of when an employer or employee might want to use a settlement agreement:
- A job is now redundant due to a downturn in business, but the employer wants to avoid the long process of redundancy. A settlement agreement can be a quick and clean way of terminating employment
- A company has evidence that an employee has committed gross misconduct. To avoid lengthy employment tribunals, the company offers to let the employee leave quietly so they do not have to go through hearings and risk a dismissal on their record.
- An employee has evidence that their employer has dismissed them unfairly, which they dispute. This can be settled outside of court at a fraction of the value of the claim via a settlement agreement
When do settlement agreements become legally binding?
A settlement agreement is legally binding when it is signed by both parties. It must also comply with the conditions regulating settlement agreements set out in section 203 of the Employment Rights Act 1996.
What happens if you breach a settlement agreement?
If, as an employee, you breach the terms of the settlement agreement, you can be ordered to repay all or some of the money you were paid by the employer, together with legal fees incurred by the employer as a result of the breach.
As an employer, you also have a legal requirement to abide by the terms and conditions of the settlement agreement. If you do breach the agreement, with late or no payment of fees or confidentiality breaches, then the employee can seek legal advice to resolve the issue through mediation or the courts, if necessary.
How can Smooth Commercial Law help me with settlement agreements?
Settlement agreements are great tool in an employee’s and employer’s arsenal to solve potential employment law problems. They can, however, be relatively complicated, and if they are not carried out properly they could lead to further issues down the line.
Our team of employment law solicitors can help employees who have questions around settlement agreements, and scrutinize the small print to ensure that you are getting a fair deal with no loopholes.
Our expert team of employment law solicitors can also assist businesses with drafting and carrying out the settlement agreement process. If you are a business owner or manager and have questions with settlement agreements, or don’t know where to begin, let us help.
If you have any questions about settlement agreements, their uses, or their potential pitfalls, you can contact our experienced settlement agreement solicitors by calling 0800 046 9976 or by emailing firstname.lastname@example.org. You can also contact us through our enquiry form here.
Contact Smooth Commercial Law
📍 104 Mere Grange, Leaside, St Helens, WA9 5GG
👨💼 Scott Birchall, Director, Smooth Commercial Law