Settlement Agreement

What is a settlement agreement?

A settlement agreement is a legally binding agreement between an employee and an employer which usually results or documents the termination of employment.  This usually involves some form of financial compensation in return for the employee agreeing not to pursue any claims in a Tribunal or Court. Often, the employer will stipulate that the employee cannot disclose the terms of the contract, the reasons for the termination or the amount of the settlement to anyone else.

Settlement agreements vs Compromise agreements

Before 29^th July 2013, settlement agreements were known as compromise agreements. Although the name has been changed, there is very little difference between a settlement agreement and a compromise agreement.

How much is an employment settlement agreement worth?

The amount an employee gets depends on the individual case and circumstances surrounding the agreement. Usually, if an employee has been working for the company over two years, the employer has forced them to resign and there’s sufficient evidence to prove constructive or unfair dismissal, then a case on average will settle between one to four month’s salary plus notice pay.

If there is evidence of whistleblowing or discrimination, an employee could get more in a settlement agreement (and the two years’ service requirement is no longer relevant).

Do you need solicitors for a settlement agreement?

Yes, a settlement agreement must be signed by an independent legal adviser (one different to the employer’s) for it to be binding to the employee. This is why an employee must seek expert settlement agreement solicitors for the agreement to be in their best interests.

For the employer, it is important that a specialist employment solicitor has drafted the agreement.  There are strict requirements in terms of the wording of the agreement to make it a legally binding agreement waiving the employee’s rights.

The legal requirements for a settlement agreement

For a settlement agreement to be legally binding, there are a few stipulations that need to be followed:

• Any settlement agreement must be in writing
• It must relate to a particular complaint or proceedings
• The employee must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement
• The independent adviser must have insurance or professional indemnity insurance
• The agreement must name the adviser
• It must specify the statutory provisions have been satisfied

If you wish to discuss a settlement agreement, our friendly employment law experts are available to listen to your needs.

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