Employment Settlement Agreement

What is a Settlement Agreement?

A settlement agreement is a legal agreement, used to either end employment or document the resolution of an employment dispute.

Such disputes can be performance related issues, redundancy or other reasons. It will document terms agreed between the parties in regard to pay, holiday, notice periods or conditions placed on notice periods, compensation, confidentiality and others according to the employee’s position of employment.

A draft agreement is normally prepared by the employer to document the terms applicable, which is then provided to the employee. The employee should take independent legal advice, as to the terms of such an agreement to ensure they are fair and reasonable. It is also incumbent on the employee, to ensure such terms reflect what they believe to have been agreed. Once the agreement has been entered into between the parties, it will be biding on all.

It is customary for the employer to be responsible for payment of any legal fees the employee incurs, in taking such advice.

Effect of Settlement Agreements

The employee should be aware that in agreeing to the terms in a settlement agreement, the following apply:-

⬜ Legally Binding

The Agreement is legally biding on all parties

⬜ Waiver of Rights

The agreement can require the employee can waive a right to pursue a claim for the issue via an Employment Tribunal

⬜ Financial Compensation

The employee usually receives a financial payment and may also receive a reference

⬜ Voluntary Nature

They are entirely voluntary and should contain mutually agreed terms, but it is not mandatory for either party to enter into such agreement, if they don’t wish to

The terms are usually agreed via prior negotiation and discussion, but neither party is obliged to accept the terms initially offered – there may be offers and counter-offers.

The negotiations are often confidential and not admissible as evidence in an Employment Tribunal, if agreement is not reached between the parties.

There is no requirement to have to go through a disciplinary process, as they can be offered at any stage in employment.

They are not suitable as a tool for dealing with all issues.

The parties should bear in made during discussions that the specific circumstances and underlying reason for ending the employment, can have a bearing on matters such as Job Seeker’s Allowance, Universal Credit and some insurance policies.

They are frequently used to terminate the employment relationship, but in an amicable way, in circumstances where the parties feel the relationship is no longer viable or workable and by having a clean break, the employment can be brought to an end.

The employment relationship does not have to end, unless that is what the parties want. It can also be used to document the resolution of a dispute.

Advantages of Settlement Agreements

Swift Resolution

They can bring a swift end to a dispute or employment

Mutual Consent

If terms are agreed the cessation of the employment does not amount to a “dismissal”, but mutual consent

Discretion

There is no need to state in the agreement why the employment is ending

They can avoid the time, cost and stress of going via an Employment Tribunal
They can provide compensation and a reference for the employee
Any compensation payment (up to £30,000.00*) is free of income tax and national insurance liability

NB* based on current limits but subject to change by the government