Settlement Agreements (formerly Compromise Agreements)

A Settlement Agreement is a legally binding contract between employer and employee which usually brings the employer and employee relationship to a mutual end. A Settlement Agreement can also be used where the employment is ongoing, but both parties want to settle a disagreement that has risen to secure a 'clean break' and providing a practical and effective solution.

Advantages of Settlement Agreements:

• Avoids costs of tribunal proceedings

• Sets out terms agreeable to both employer and employee

• Employee has the certainty of a settlement sum

• Employer is protected against employment claims.

• It is customary for an employer to pay the legal costs incurred by the employee, but only if the employee enters into the Settlement Agreement and the employer may limit costs to a specific amount.

Employers are encouraged to have “protected conversations” on a “without prejudice” basis meaning that anything related to these pre-termination negotiations are not admissible in the proceedings.

Although entering into settlement agreements might appear to be straightforward, the legal principles and practical implications can be complex. As a minimum, the agreement should confirm and comply with the formalities set out in legislation in order to ensure it is legally binding on those involved.

These conditions include, amongst others, that the agreement must be in writing and the employee has received legal advice from an independent legal qualified adviser on the terms and effect of the agreement.

As a result of an employee taking independent legal advice, several issues will be raised such as:

• How soon will the severance payment be made?

• Who will be responsible for paying the employee’s legal costs?

• What happens about the contractual benefits e.g. the company car, the laptop, the mobile, the healthcare?

• Is the employee entitled to outstanding holiday pay?

• Should the employer be obliged to provide a reference?

• What are the overall tax implications of the agreement?

 

Employers will also usually include provisions which restrict an employee from going into competitive employment or soliciting customers and employees for a period of time afterwards. Even if these restrictive covenants are already included in the employee’s contract of employment, the employer is advised to restate them in the settlement agreement to ensure clarify.

 

Therefore, there will be a period of negotiation which explores what both the employer and employee will be able to agree to or dispute. Eventually if everyone uses a pragmatic and is realistic in the circumstances a compromise will be achieved. This is almost always achieved by using expert our settlement agreement solicitors.

At Lawson West we recommend seeking legal advice should you have a potential claim made against you - to ensure you follow the correct procedures and do not miss anything that is crucial in the process. Claims can be very costly and need to be carefully considered early on.

Our Specialist Settlement Agreement Solicitors are available to provide the appropriate advice and guidance in relation to any aspect of settlement agreements or employment law.

Please contact us on Tel: 0116 212 1000 or 01858 445 480, alternatively complete the free Contact Us form here and we will get in touch as soon as possible.