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As an employer, you need to understand when it may be the right time to offer your employee a settlement agreement. Alternatively, if you’re approached by an employee requesting a settlement agreement, you may require legal advice on what to do next. We provide superior legal advice that protects your interests and ensures your settlement agreements are compliant. 

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What is a settlement agreement? 

A settlement agreement is a legally binding contract between employers and employees (or former employees) to settle any existing employment claims and potential employment claims on agreed terms.  It is usual for an employer to offer the employee a payment in return for signing the agreement and to terminate the employee’s contract of employment.  Settlement Agreements usually include terms in relation to confidentiality, non-derogatory terms and an agreed reference. 

For a settlement agreement to be valid it must be in writing and should refer to a particular complaint or proceedings. The employee must obtain independent advice from an authorized person before signing it, which in most cases is a legally qualified lawyer. 

Why would an employer offer a settlement agreement? 

Settlement agreements are utilised by many employers to provide certainty when taking decisions which could have the potential to give rise to a dispute with an employee or employees in the Employment Tribunal, such as claims for unfair dismissal, redundancy, discrimination, and breach of contract.  They are often used in cases of poor performance to avoid employers having to follow a long poor performance process. It gives an employer a clean break, usually removing the opportunity for the employee to take the employer to the Tribunal over the subject matter of the agreement.  

Do employers have to pay legal fees for a settlement agreement? 

It is usual for employers to offer employees a contribution towards their legal fees when entering into a settlement agreement. This is because it is mandatory for an employee to take independent legal advice before signing the agreement.  The contribution to legal fees will not always cover the full costs of taking advice, particularly if the employee wants to negotiate the wording and / or the financial package.

 

I also want to say thank you for the calm, courteous and professional way that you have helped me through this stressful process. It was not easy after 30 years with one employer, to stop my emotions taking over my decision making. You helped me keep my focus by providing clear and objective advice. You also took the bulk of the paperwork burden from me, which helped me enormously. I would recommend you, without a moment’s hesitation, to other people I know who need this type of service. Once again THANK YOU.
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What happens if an employee doesn't accept a settlement agreement? 

Employees are free to reject the settlement offered or terms proposed. In these circumstances we would discuss with you the basis of the rejection and, if appropriate, seek to negotiate with the employee to see if agreement can be reached. If an agreement can’t be reached, the employer may take advice on following a process, such as disciplinary, poor performance or redundancy and in other cases may seek advice on a commercial strategy if keeping the employee in the business is not appropriate. 

Which workplace issues can be resolved with a settlement agreement? 

The common workplace issues which are resolved through a settlement agreement include: 

  • Unfair dismissal 
  • Poor performance
  • Disciplinary matters
  • Grievances
  • Unpaid wages
  • Unpaid holiday pay
  • Redundancy
  • Discrimination 

Need to speak to an employment law solicitor? 

Our specialist employment law solicitors have the capability to meet tight timescales and provide proactive assistance, where and when you need it. Call us today to discuss your settlement agreement requirements or complete our enquiry form below.