A settlement agreement is a binding legal contract between an employer and an employee. It can be used for many reasons but most often when an employer is terminating your employment. It is a very important document and you should seek legal advice if you are unfortuate to be presented with one.
What is a Settlement Agreement?
An employer will usually present their employee a settlement agreement at the end of their employment when they wish a "clean break" and do not want the employee to have any legal claims on them.
Provided the settlement agreement meets particular legal requirements, it will usually result in the employee giving up certain defined legal claims they may have against their employer. The right to claim unfair dismissal, redundancy pay, or discrimination are classic examples. This is often why an employer may be keen that an employee enters into a Settlement Agreement.
A settlement agreement can also be used to settle grievances or disputes during employment when the employment is not being terminated.
As a settlement agreement can result in an employee giving up any further legal claims on the employer, it is also why the law requires an employee to have been given proper advice on the agreement by a “relevant independent adviser” before it can be effective.
What advice should you receive before signing a Settlement Agreement?
An experienced employment law solicitor will start by getting as much relevant detail as to the background of your employment circumstances as possible. This is so that they can properly advise you on any relevant issues, the potential claims that may stem from issues, and the merits of entering into a Settlement Agreement.
The vast majority of Settlement Agreements will include provision for some form of payment to the employee, so it is important for you to understand the value of any claims you may be giving up by entering into the agreement. It is also important to understand if those claims are likely to be successful. It is also crucial that you are advised on what the employer may do if you don't agree to the Settlement Agreement. Is the employer likely to proceed to disciplinary action, or even dismissal? Could this be seen as fair by an Employment Tribunal? These questions allow us to properly assess your bargaining position, and that in turn can help you decide if you wish to accept an agreement, refuse it outright, or have your solicitor negotiate on its terms.
Often the focus is on the offer of financial compensation to the employee. However, the other (quite lengthy) terms of the agreement are also important. For example, you should want to know what your rights will be in relation to matters such as shares, options, pension, bonuses and benefits. It may be important for an employee to agree an employment reference that they will receive, to assist their future employment prospects. You also need to be aware if the Settlement Agreement may be subject to any restrictions as to where you can work when you leave the employer, if their employment contract or the Settlement Agreement contains “restrictive covenants”.
These are just a few examples of issues that your solicitor will advise on. It is likely that there would be amendments to the agreement whether they are financial or otherwise.
Due to the importance of this document to your future, we strongly advise getting legal advice from an experienced employment laywer. Many will be happy to have an initial consultation before charging you any fees.
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