EMPLOYMENT: What is a settlement agreement?

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A settlement agreement is a legally binding agreement between employer and employer following the departure of the employee from their job with their employer

A settlement agreement is a legally binding agreement between employer and employee used when employment comes to an end and which protects both employer and employee from future action being brought by the other party (employment tribunal). It provides a ‘clean break’ between employer and employee.

Can I bring an employment tribunal against my employer after a Settlement Agreement?

Although there are exceptional circumstances in which you can bring a claim against your employer after signing a settlement agreement, the general principle (and the whole point of) a settlement agreement is that it removes the risk of legal action being brought. It creates a clean break between employer and employee and this is one of the main reasons for settlement agreements being used.

Why have a Settlement Agreement?

The point of a settlement agreement is to give certainty to both the employer and employee. It is a requirement of law that where a settlement agreement is signed, the employee must receive independent legal advice on the terms of the settlement agreement and the circumstances surrounding the ending of their employment. The employer must pay for that independent legal advice. Once a settlement agreement is in place and deemed legally valid, it defines the terms of a ‘clean break’ between employer and employee, and means that legal action in the future can not be taken (employment tribunal).

When is a Settlement Agreement used?

Settlement agreements used to be called compromise agreements. The old form of agreement was often used where there were problem employees. Settlement Agreements are much more widely used – even where someone is leaving for uncontroversial reasons, eg redundancy. Put simply, settlement agreements are used when employment comes to an end (usually instigated by the employer) to bind the employer and employee to the terms of that employment coming to an end.

Does a Compromise Agreement mean something bad happened?

No – getting a settlement agreement does not imply something bad has happened! They simply are used to bind the terms of the employment coming to an end in a way that protects both employer and employee. That said, some situations where employment is ending may be in circumstances where an employee was seen to be a ‘problem employee’ to the employer. Where there is disputes between employees and employers, a settlement agreement may resolve issues around: wrongful dismissal; redundancy; discrimination in the workplace; grievance procedures; disciplinary processes; bullying at work; sexual discrimination; misconduct; gross misconduct; and performance issues.

A settlement agreement may relate to poor staff performance and may follow a disciplinary process (but not necessarily)

How much does a Settlement Agreement cost?

As a rough guide, an employment solicitor will generally (currently at 2022) charge around £500 (+VAT) to advise on and ‘sign off’ a settlement agreement.

It is however a requirement of the legislation that your employer meets all or a reasonable proportion of the cost of that independent legal advice. So, the cost to you as the employer should be nil.

If you decide to challenge your employer on the terms of the settlement agreement, your employment law solicitor will likely charge you more. They will however agree any extra fees before you are committed to anything – so you should not have any surprises!

How long does a Settlement Agreement take?

If the terms of the agreement are agreed between you and your employer and the settlement agreement just needs to be ‘signed off’ by your employment solicitor then it should not take long.

At Qlaw we do everything online (including Zoom chat and our industry leasing client app) so if your settlement agreement is all agreed, and nothing unusual crops up, we can often provide a ‘same day’ settlement agreement service.

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Contact

For advice on any of the issues raised about settlement agreements, please reach out to our expert team of employment solicitors. You can email us at info@qlaw.co.uk or call us on 03300 020 365.