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Settlement Agreements - What do Employees Need to Know?

View profile for Joanne Druce
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What is a settlement agreement?

Formerly known as a compromise agreement, a settlement agreement is a legally binding contract made between employer and employee.

A settlement agreement is usually used in connection with ending employment on agreed terms. A settlement agreement could also be used where the employment relationship is ongoing, but both parties want to settle a dispute that has arisen between them. By entering into such an agreement you will almost certainly waive your right to bring any claims against your employer.

Settlement agreements are legally binding, which is why the law says they are only valid if you have taken independent legal advice on the terms and effects of the settlement agreement before signing.

Employers will generally provide a financial allowance to cover the costs for the legal advice sought in order to enter into this agreement.

With the legal costs being covered by employers, all that remains is for you to ensure you received the very best legal advice before agreeing to all the terms of the contract.

Laura Hanford is highly experienced in providing up to date advice for both employers and employees. Laura has seen a spike in the demand for such agreements since the outbreak of COVID 19 and would assume this trend will continue.

A recent client left a 5-star review on Google and had this to say about the advice she was given:

 I received help for an employment matter from Laura at F.Barnes - Laura was very easy to speak to, professional and knowledgeable. She dealt with my matter swiftly and was in constant communication with me to provide progress updates. Hopefully, I will not have to use a solicitor for future employment matters, but should I need to, I would certainly use F.Barnes again. Highly recommended. Meera Darji 25.08.20

If your employer has asked you to sign a Settlement Agreement please do not hesitate to get in touch with Laura. Your costs will be covered for this excellent advice.

For more information, we have collated a fact sheet on  Settlement Agreements and how they work as below:

What are Settlement Agreements?

Settlement agreements are legally binding contracts which can be used to end the employment relationship on agreed terms.

Their main feature is that they waive an individual’s right to make a claim to a court or employment tribunal on the matters that are specifically covered in the agreement.

Settlement agreements may be proposed prior to undertaking any other formal process. They usually include some form of payment to the employee by the employer and may also include a reference.

What is a valid Settlement Agreement?
For a settlement agreement to be legally valid the following conditions must be met:
  1. The agreement must be in writing.
  2. The agreement must relate to a particular complaint or proceedings.(Note: Simply saying that the agreement is in “full and final settlement of all claims” will not be sufficient to contract out of employment tribunal claims. To be legally binding for these purposes, a settlement agreement has to specifically state the claims that it is intended to cover.)
  3. The employee must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue that complaint or proceedings before an employment tribunal.
  4. The independent adviser must have a current contract of insurance or professional indemnity insurance covering the risk of a claim by the employee in respect of loss arising from that advice.
  5. The agreement must identify the adviser.
  6. The agreement must state that the applicable statutory conditions regulating the settlement agreement have been satisfied.

Do I have to sign a Settlement Agreement?

Settlement agreements are voluntary. Parties do not have to agree to them or enter into discussions about them if they do not wish to do so.

Parties do not have to accept the terms initially proposed to them but can instead enter into negotiation during which both sides make proposals and counter-proposals until an agreement is reached, or both parties recognise that no agreement is possible.

How long do I have to agree to the Settlement Agreement?

Parties should be given a reasonable period of time to consider the proposed settlement agreement. What constitutes a reasonable period of time will depend on the circumstances of the case. As a general rule, a minimum period of 10 calendar days should be allowed to consider the proposed formal written terms of a settlement agreement and to receive independent advice, unless the parties agree otherwise.

For a more detailed look at the rights and codes of practice in relation to settlement agreements please speak to Laura and you can also visit ACAS