Settlement Agreements – What you need to know

Whether you are an employee who has been offered a settlement agreement by your employer, or an employer thinking of offering one (or more) of your employees a settlement agreement or a 'clean' break up, here is a brief summary of what you need to know about them.

What is a settlement agreement?

As an employee you may have statutory or contractual claims against your employer. These could be under the statutory legal frame, your contract of employment, or even under common law such as the law of negligence. These claims may arise during the recruitment process, the duration of your employment or on termination.

In many cases, the employer will want to make a payment as an incentive to the employee in return for an effective waiver of such claims. This is often the case where the employment is either about to terminate or terminating.

Settlement agreements (formerly known as compromise agreements) are drafted with these potential claims in mind, which means in order for most of these statutory or contractual claims to be settled or waived, an agreement needs to be recorded in writing. The settlement agreement itself needs to comply with certain statutory requirements. Also some exceptions apply, meaning not all potential claims can be waived in any settlement agreement. Two examples of these would be claims in relation to personal injury or pension contributions.

How to negotiate a settlement agreement?

Depending on the nature of the relationship between the employee and the employer, the employee is often invited to a meeting with their employer at a mutually convenient time and place. The correct approach will very much depend on the circumstances. The discussions in relation to any settlement package are often discussed on a 'without prejudice' basis. This provides a blanket over the discussions taken effect, which means if conducted correctly, these discussions are expected to be inadmissible in tribunal proceedings.

At the meeting, the employer should explain its concerns (for example, performance or conduct issues or the breakdown of the working relationship) in an unbiased manner, and propose a clean exit with an agreed settlement package. The employer is advised to provide sufficient information, including what has led to the offer and explaining the potential consequences if the employee is to remain in employment. This could mean going through the performance management process or the disciplinary procedure.

It is critical that the employer does not behave improperly and it should not place the employee under any undue pressure. As there is always a possibility of discussions getting heated and the risk of admissibility of the discussion, employers are often provided with a script to follow for the meeting.

What to do next?

At Rollits we offer advice to both individuals (employees) and employers. For a settlement agreement to be effective, the employee must receive independent legal advice on the effect of the agreement.

If you have been offered a settlement agreement and need to seek advice, you can contact our employment team to ensure the best possible deal is negotiated for you on your behalf.

If you are an employer and want to offer an employee a settlement agreement, get in touch with our employment team. We have several years of experience in offering employers pragmatic, practical and effective advice from the outset. We can guide you through the process and draft all the required documents.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.