Settlement Agreements
What is a Settlement Agreement?
A settlement agreement (Compromise agreement) is written agreement between an employer and employee under which the parties agree to end their relationship amicably on agreed terms.
These agreements allow both parties to avoid lengthy and costly litigation by agreeing on certain terms, such as compensation, confidentiality provisions, and future employment references. Once signed, a settlement agreement typically prevents the employee from making future legal claims against the employer concerning the matters specified within the document.
For the agreement to be valid, the employee must receive independent legal advice on its terms and implications. By engaging qualified settlement agreement solicitors, you ensure your interests are protected and that you fully understand the short- and long-term consequences of signing the agreement.
Key Elements of a Settlement Agreement
While every situation is unique, most settlement agreements will include several standard components. Understanding these elements will help you assess whether the proposed terms are fair and appropriate.
The agreement may provide for:
- a defined payment for, for instance, enhanced redundancy;
- agreed notice pay, or an agreed payment for defined possible theoretical claims, although this will be inevitably without any admission of liability;
- an agreed reference to enable you to gain employment for the future;
- a confidentiality clause restricting what either party can say about the termination;
- a ‘restrictive covenant’ which may restrict what you can do in terms of competing with the business later after you have left employment.
Our Senior Consultant Solicitor, Kuldeep Clair, helps employee-clients throughout the country and particularly throughout Greater London. He specialises in assisting senior executives and the City and the financial sector.
Kuldeep always trys to renegotiate and improve upon any offer put forward to our employee-clients. Unlike many lawyers, we never simply sign-off the agreement as it stands, unless those are your specific instructions. We will go through the agreement paragraph-by-paragraph in a professional manner, to ensure that you are content with the implications of the agreement and any obligations on you under it.
Is a Settlement Agreement Legally Binding in the UK?
Yes, a valid settlement agreement is legally binding in England, Wales, and Scotland, provided it meets certain statutory requirements. These include:
- Written format. The agreement must be in writing; verbal understandings are insufficient.
- Independent legal advice. The employee must have received advice from a qualified solicitor, certified trade union official, or other authorised adviser regarding the terms and effect of the agreement.
- Identification of the advisor. The agreement must specify the legal adviser’s name and confirm that they are authorised to provide such advice.
- Relevant claims. The agreement should detail which potential claims are being waived, such as unfair dismissal or discrimination claims.
Once these conditions are satisfied and the agreement is signed, both parties are generally bound by the terms. If either side breaches those terms, the other party can pursue legal remedies for breach of contract.
How to Negotiate a Settlement Agreement?
A common misconception is that settlement agreements are straightforward and do not require specialist advice. However, overlooking certain clauses can be detrimental to your financial, legal, and professional position. A settlement agreement lawyer will review the proposed agreement, clarify any ambiguous terms, and negotiate improvements on your behalf if necessary.
What Will It Cost Me?
Usually absolutely nothing. Commonly, the employer will pay for the legal costs of us advising you in relation to the settlement agreement, even though we are acting entirely in your interests.
This is because it is necessary for an employee to be advised by a properly qualified independent lawyer for the agreement to be enforceable. We will normally send our invoice directly to the employer.
Why Should I Have a Formal Settlement Agreement if Ending My Employment?
If ending your employment, any agreement is not binding unless certain formalities have been complied with. You must have received advice from an independent qualified advisor acting on your behalf, such as a solicitor, who must have professional indemnity insurance covering him or her against the risk of not advising you properly. The advisor must be named in the written agreement and he/she must certify that the statutory conditions have been fulfilled.
I am an Employer and I Want to Dismiss an Employee. Do I need a Settlement Agreement Drafted?
It may well be a good idea, depending on the circumstances. We can certainly draft a settlement agreement for you which meets your needs. We can take your detailed instructions on the background and advise on what clauses to include within the agreement. Of course, your employee will need to take independent advice from another lawyer before the settlement can be regarded as binding. Our settlement agreement solicitor, Kuldeep Clair, acts for employers and employees and has experience on both sides of the fence.
Get in Touch
If you are considering or have been presented with a settlement agreement, expert legal advice is essential to safeguard your interests. For professional support, contact Sterling Law today. Our experienced solicitors stand ready to provide a settlement agreement legal advice, helping you make informed decisions and secure the best possible outcome for your circumstances.
