What is a settlement Agreement?
A settlement Agreement can be used between an Employer and Employee to resolve disputes and settle claims in the work place.
A settlement Agreement is a legally binding document which sets out the agreed Terms and Conditions which are signed by both the Employer and Employee. The Terms and Conditions usually consist of the Employer agreeing to pay compensation, and the Employee agrees to drop the right to pursue any claim and the employment relationship will come to an end.
Employers may use Settlement Agreements when they wish to terminate a contract of employment with an Employee by agreeing mutual Terms.
How is a Settlement Agreement legally binding?
To be legally binding, a Settlement Agreement must include the following:
- The Agreement must be in writing
- The Agreement must relate to the proceedings
- The Employee must have received independent legal advice
- The Agreement must refer to an independent adviser
- The adviser must be insured to cover the potential loss from the advice that has been given
- The Agreement must satisfy the statutory provisions
What is included in a Settlement Agreement?
A settlement Agreement can include various terms and provisions, such as:
- The date that the employee will be leaving, and the employment will come to an end.
- The figure of compensation to settle the dispute.
- The Agreement will list the most common claims that can be brought against an Employer.
- The Agreement will usually include a tax indemnity clause which provides that if there is additional tax that needs to be paid on the amount, this will be for the Employee to pay and not the Employer.
- The Employee may be asked to return company property or to keep information confidential.
- The Employee must have obtained legal advice about terms of the Agreement and the effect that the Agreement has.
The Settlement Agreement can include a provision that the existence of the document and the Terms agreed between the Employer and Employee is kept confidential.
What are the benefits of a Settlement Agreement?
A Settlement Agreement can be a quicker process than pursuing a potential claim in the Employment Tribunal.
They can also be used to avoid the stress of litigation through an Employment Tribunal.
Settlement Agreements are also not made public, pursuing a claim in the Employment Tribunal will mean that the claim will be public knowledge whereas an Agreement will usually remain private and confidential between the Employer and the Employee.
When can a settlement Agreement be used?
A settlement Agreement can be offered in many situations; however, they are usually used when terminating a contract of employment as well as when there is a dispute between the Employer and Employee.
Who signs a settlement Agreement?
The Agreement is signed by the Employee once the independent adviser is satisfied that the Employee fully understands the terms of the agreement such as agreeing not to pursue the claim any further and the compensation that has been offered.