EMPLOYMENT: What does a settlement agreement cover?

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Settlement agreements will cover the terms surrounding your exit from employment like: final pay; compensation; holiday; bonus payments. They may all be as per your employment contract

The sorts of questions your settlement agreement are likely to answer might include: have I been offered a reference? Will my settlement agreement legal fees be paid? How much will I be paid? What tax is payable on my settlement agreement? Are there any restrictive covenants in my settlement agreement? Will I be paid my bonus in my settlement agreement? What benefits will continue after my settlement agreement? What will my termination date be in my settlement agreement?

Who prepares a settlement agreement?

The employer (or more likely their employment solicitors) will prepare the settlement agreement.

Who will pay for my settlement agreement?

One thing a settlement agreement must cover is confirmation that your employer will pay for you to receive independent legal advice from an employment lawyer. The settlement agreement will set out the exact amount(s) your employer is prepared to pay for you to see an employment solicitor.

The cost of preparing the document (the actual settlement agreement) will already have been met by your employer).

What types of dismissal does a settlement agreement cover?

Settlement agreements are used more often than not these days when the end of an employment contract is instigated by the employer. This may be in relatively benign circumstances like a redundancy situation. However, it might be after prolonged problems between employee and employer. That might include issues around: performance; bullying; grievance process; disciplinary process; dismissal; and deemed constructive dismissal.

What terms will my Settlement Agreement cover?

Your settlement agreement will outline the exact terms and conditions of the end to your employment, and where payments are being made they will set out the amounts, or the appropriate calculations that will apply to any payments due. It is likely that the terms to the settlement agreement simply follow your contract of employment and or terms and conditions of employment. Where your contract of employment does not include certain provisions, the settlement agreement may follow statutory employment law – for example with redundancy payments.

A settlement agreement sets out the details of the termination of your job with your employer

Why have a Settlement Agreement?

The purpose of a settlement agreement is to legally bind employee and employer to the terms it sets out. Having done that, it provides a ‘clean break’ from the employment contract and removes the likelihood of legal action in the future (employment tribunal).

It also provides the employee with the opportunity to have independent legal advice from an employment solicitor, and to do that at the cost of their employer.

Is it a bad thing to have a Settlement Agreement?

No, it is absolutely NOT a bad thing to be given a settlement agreement. Historically, what were called ‘compromise agreements’ were often used where there were problems between employer and employee to avoid disputes ending up before the employment tribunal. However, settlement agreements have become much more widely used now even with non-contentious areas such as redundancy. So no, a settlement agreement is not a bad thing!

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