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Settlement Agreements

Buying and Selling a Business

Jacqueline PenfoldAuthor: Jacqueline Penfold. Litigation and Employment, Partner

What is a Settlement Agreement?

A Settlement Agreement is a legally binding contract entered into between an employer and an employee.

Normally, the employer pays a sum of money to the employee and in return the employee agrees not to pursue any claims against the employer arising out of their employment or its termination.

Providing the Settlement Agreements meets various statutory requirements, it can be enforced in the same way as any other contract.

When is a Settlement Agreement Used?

Settlement Agreements are very common. They are generally used in connection with the termination of employment – but not always.

Employers can use a Settlement Agreement in a number of different situations which can range from paying an employee an enhanced redundancy payment to a way of resolving an issue that has arisen during the course of the employment. For example, a Settlement Agreement could be offered to end the employment on mutually agreed terms as an alternative to going through an employment procedure, such as a capability procedure/performance improvement plan.

Why Use a Settlement Agreement?

From an employer’s prospective, the benefit of a Settlement Agreement is that it offers certainty.  Providing a Settlement Agreement is properly completed and complies with relevant legislation, the employer will have certainty that the employee will be unable to bring a claim against it in connection with his or her employment or its termination (save for some very limited exceptions).

Settlement Agreements can normally be swiftly negotiated and bring a quick conclusion to matters on agreed terms. It can achieve a clean break between the employer and the employee.

How Much Compensation Should be Paid?

The amount to be paid under a Settlement Agreement varies in each case and depends on the circumstances in which it is issued.  For example, when considering the amount to be paid we would look at the length of service, the treatment the employee has received, whether the employee has any employment claims and the value of those claims.

The terms of the Settlement Agreement can often be negotiated.

Why Does an Employee Have to See a Solicitor About the Settlement Agreement?

In order for the Settlement Agreement to be legally binding the employee must receive independent advice on the Settlement Agreement to ensure they understand the claims they will be giving up.

It is normal for the employer to pay or contribute towards the costs of obtaining legal advice on the Settlement Agreement.

Does an Employee Have to Sign a Settlement Agreement?

No – entering into a Settlement Agreement is a voluntary process.

What Should You Do if Your Have Received a Settlement Agreement?

If you have received a Settlement Agreement you should contact us as soon as possible and we will arrange to see you quickly.  We can advise you on the terms of the Settlement Agreement and whether it offers a ‘good deal’ for you or not.  If appropriate, we can also negotiate the terms of the Settlement Agreement for you.

Get in touch

If you would like employment advice regarding a Settlement Agreement or any other employment issue please contact us on 01323 727321 to arrange an appointment.

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Please note the above is for information purposes only and is intended to be a short summary.  It should not be treated as a comprehensive guide and should not be acted on without qualified legal advice.