Settlement Agreements can be a minefield

The pandemic has not eased off and sadly there are more and more circumstances where employees are being made redundant. This agreement and pay-out is useful and usually agreed in an amicable way. There are however a huge number of situations where tensions are high in the workplace and worries are vented to colleagues and even those in charge. This means that a company may feel that it is time to go separate ways. The method to facilitate this would be in the form of a settlement agreement.

If you are in the awful position where your employer is forcing this on you or even if you are the employer that cannot move on productively without a particular employee being asked to leave. You will need an agreement drawn up or if you are the employee then you will need the agreement looked at, negotiated and require general advice before agreeing to its terms.

A settlement agreement, which was previous known (and sometimes still is) as a compromise agreement, is the focus of this note. Firstly, it is very important to explain that a settlement agreement is legally binding, and the core purpose is to effectively end the employment contract and more importantly end the terms that are contained within.

It is more desirable for an employer to push a settlement agreement because one of its other main purposes is to stop the employee being able to enforce its rights to making a claim after the contract has ended. Usually this would be the case if an employment contract would end and the employee wished to take a dispute further then there is the employment tribunal that can be used. It is also usual for a payment of settlement and maybe even a reference to be included in the agreement.

There are various points to be mindful of for a settlement agreement to be legally binding or valid in the circumstances. It is easier if I list them:

  • In writing
  • Must related to some form of complaint
  • An independent adviser must have provided advice
  • Adviser must have valid and up to date insurance and professional indemnity
  • The identity of the adviser which has advised on the content must be clear
  • It must also be evident that the applicable statutory conditions regulating the settlement were satisfied.

The above are merely some of the points to ensure are included but usually an agreement of this type will have a number of clauses that will not be clearly understood. Ensure you do not sign anything without taking advice. You may also find that the settlement agreement is not fair to both parties initially so will need a legal representative to work through the terms before signing and suggest amendments to make it more proportionate and balanced.

There is no legally valid settlement agreement which has been forced so it must have been accepted voluntarily so never feel pressured and always take advice.

If you are the employee, then there is a huge amount of text online which can provide you with some information on these types of agreements, but it is usually a requirement that you have taken legal advice and that legal representative has signed to confirm it has advised you accordingly and that you understand the terms which you are agreeing to. The cost is also usually provided by the employer so that you do not have to dip your hand in your pocket. We can facilitate this so do get in touch in you require more advice.

If you are the employer, it is important that you steer clear of the template agreements that can be found and ensure you otbain legal advice to confirm you are being fair and reasonable in the circumstances but also protecting your position for the future. There is a whole plethora of clauses which can be included in a settlement agreement and the templates will throw loads and even some which are not relevant or appropriate. Please ensure you do get legal advice and have the agreement drafted by a professional who provide a bespoke agreement in accordance with your instruction and the law.

Happy to talk further on the phone if you need some further advice before committing.  

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