Historically known as a compromise agreement, a settlement agreement is a contract between an employer and employee that settles claims that the employee may have arising out of their employment or its termination. The employee agrees to give up their rights to bring proceedings against their employer, usually in exchange for a payment of compensation.
The agreement can be entered into during or after the termination of employment.
A settlement agreement has to be in writing and deal with the complaints that the employee may have against the employer.
To be binding the employee must receive independent legal advice on the settlement figure and the terms of the agreement before they sign. The employer will normally pay a contribution to the employee’s legal fees
The standard terms in a settlement agreement deal with;
• The date for termination of employment
• The amount and time for payment of the compensation
• Arrangements prior to termination of employment for example whether the employee is required to work
• The return of company property
• Payment of tax
• The waiving of what claims the employee may have
• The return of property
• An agreement not to make or publish derogatory comments
The independent advisor will not only advise on the terms and their wording but attempt to negotiate if the terms are not favourable. Not all employers will be amenable to such negotiation, much will depend on the circumstances and the sums already offered.
Whilst an employee will waive their right to bring claims against their employer in a settlement agreement this will not preclude them from bringing a breach of contract claim against the employer if the compensation payment is not made or if other terms of the agreement are not adhered to.
Hand Morgan & Owen has significant experience of acting for employers and employees in Settlements agreements which should be approached carefully to ensure that both parties’ interests are adequately protected.
If you are an employer or an employee and require advice as to any aspect of employment law please contact Patrick Nelson Associate on 01785 211411.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
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