Settlement agreements (previously known as ‘compromise agreements’) enable an employee’s contract to be terminated, usually with a financial incentive being offered to the employee in return for them waiving their right to bring claims in an employment tribunal.
Why should I consider using a settlement agreement?
Settlement agreements are common where an employee is leaving under difficult circumstances and can be helpful in dealing with cases swiftly and painlessly. Employers may find the flexibility of such an agreement to be useful, such as the ability to include a confidentiality clause.
The clauses included can be tailored to each case, and their content can be negotiated accordingly.
How do they work?
A settlement agreement must meet all statutory requirements to avoid ambiguity and exposure to future claims. Briefly, these are:
- The agreement must be in writing;
- It must spell out the claims that it is intended to cover. An agreement which simply includes a blanket statement that it is intended to cover all possible claims will not be legally binding;
- It must confirm that the employee has received independent legal advice (annexed to the agreement will be a certificate for the independent advisor to complete)
As the employee will be charged for obtaining independent legal advice, it is good practice for the employer to cover the cost of this or to make a substantial contribution towards it.
Should the employer seek legal advice?
It is imperative that employers seek legal advice when considering a settlement agreement. This ensures that the interests of the business are properly protected and the terms and effect of the agreement are legally sound.
Every case is different- so having a trusted solicitor on hand to deal with queries or problems can avoid unnecessary headaches and expense.
The role of the ‘protected conversation’
Employers are now allowed greater freedom to address particular issues such as settlement agreements with staff through ‘protected conversations’. Here, employers can raise the idea of a settlement agreement without this discussion being able to be referred to by an employee at a later stage. This protection does not apply in certain circumstances, for instance if the employer behaves ‘improperly’ or for certain dismissals (such as those relating to discrimination or whistleblowing.) If you are in any doubt, seek advice prior to the discussion.
Our expertise
Ison Harrison’s specialist employment department is headed up by Yunus Lunat, a solicitor and Partner with vast experience of advising employers as to what needs to be covered in a settlement agreement. Call Yunus on 0113 284 5023 without delay- same day appointments are usually available.
