A Settlement Agreement is a legally binding contract used in employment law. It sets out an agreement made between an employer and an employee, in which the employee waives their right to pursue legal action in return for some form of payment.
When are Settlement Agreements used?
Settlement Agreements are typically used when an employer wants to terminate an employee’s contract – perhaps because the employee is being made redundant, or because their conduct/capability has been called into question.
If there isn’t a Settlement Agreement, an employer must be careful to follow the correct processes when terminating an employee’s contract. Otherwise, it could amount to an unfair dismissal, meaning the employee has grounds for an employment claim.
A Settlement Agreement eradicates this risk, because the employee gives up their right to pursue a claim – be it an unfair dismissal claim, a discrimination claim or a personal injury claim. This gives the employer greater protection.
Occasionally, the relationship between the employer and employee will continue, even after the Settlement Agreement has been signed. This might occur where the employer and employee are engaged in a dispute which can be resolved, such as a dispute over holiday pay.
Why should I sign a Settlement Agreement?
Settlement Agreements can be beneficial for employees, too. There is usually some kind of incentive for the employee to enter into the agreement, such as a lump sum of money and/or an agreed reference.
An employee can also avoid the redundancy or disciplinary process, both of which can be stressful and drawn-out.
If the employee is facing misconduct charges, a Settlement Agreement allows the employment contract to be terminated, without a dismissal taking place. This ensures the employee’s record isn’t tainted.
If an employee has grounds for an employment claim, he/she may prefer to take the matter to an Employment Tribunal. However, a Settlement Agreement can be an effective way of a settling dispute, so long as the compensation on offer is reasonable.
Can I refuse or negotiate a Settlement Agreement?
Yes, an employee can refuse to sign a Settlement Agreement. In fact, Settlement Agreements are voluntary. Neither party has to enter into an agreement, if they do not want to. The choice is entirely yours.
Employees can also negotiate better terms, if they feel the current offer is unfair. For example, an employee can request a greater severance package, or can ask for the wording of the reference to be amended.
Settlement Agreements are discussed on a ‘without prejudice’ basis. This means that anything you say, or any draft agreement, is ‘off the record’. Therefore, you can speak freely when negotiating a Settlement Agreement, as the discussion will remain confidential.
What happens if my employer offers me a Settlement Agreement?
If your employer offers you a Settlement Agreement, you should be allowed some time to consider it. Then, you must seek independent legal advice. This is actually a pre-requisite of a Settlement Agreement, or it isn’t legally binding.
A solicitor who specialises in Settlement Agreements can ensure you understand the implications of signing it. As a legal contract, Settlement Agreements are often full of legal jargon, and you need to unpick anything you’re not sure about.
You can then either sign the Settlement Agreement, which must be in writing. After this, you are no longer entitled to take legal action against your employer. Or, you can enter into negotiations to amend the terms of the agreement.
Will I have to pay for legal advice?
You have to get legal advice before signing a Settlement Agreement, or it cannot be upheld. However, your employer almost always pays for your legal costs, or least makes a significant contribution.
Get independent legal advice
If you have been offered a Settlement Agreement, please contact us at Breens Solicitors. We advise employees who have been presented with a Settlement Agreement, ensuring you understand your options in full.
Call us now on Southport 01704 532890, Liverpool 0151 928 6544 or complete a Free Online Enquiry and we will soon be in touch.