A Settlement Agreement is a legally binding contract between an employer and employee which settles claims that the employee may have against their employer.

A Settlement Agreement (formerly known as a compromise agreement) is usually used in connection with ending the employment, but it doesn’t have to be. A Settlement Agreement could also be used where the employment is ongoing, but both parties want to settle a dispute that has arisen between them.  A Settlement Agreement may also be used where there is no dispute but the employer nonetheless would prefer to finalize the end of the employment by way of Settlement Agreement (this happens a lot in redundancy situations).

Briefly, and not exclusively the Settlement Agreement will include information that the employment has terminated and that the employee cannot bring any claim against the employer in the future.  There are some exceptions to this but essentially the agreement is intended to draw a line under the employment and settle any claim/dispute.

What Types of Claims Can Be Settled By a Settlement Agreement?

They usually apply where your employer does not want to follow what could be a long, drawn-out process, such as a performance review or a full redundancy process, before being able to terminate. Also, where you already have issues about discrimination or have raised a grievance, your employer may want to circumvent a claim for constructive dismissal and/or discrimination.

If you are offered a Settlement Agreement because you informed your employer that you were pregnant, or because you are an older employee who has reached a certain age and your employer is trying to encourage you to retire, then all of your discussions would be admissible at Tribunal however much your employer insisted they were “off the record” or “without prejudice”. Some HR Managers have also been referring to this as “protected conversations” when this status rarely exists and only in a very narrow set of circumstances.

Some types of claims cannot be waived even with a Settlement Agreement. The most common example is personal injury, where you are unaware of the injury at the time of signing the agreement. For example, if you were unwittingly exposed to asbestos at work, the Settlement Agreement wouldn’t prevent you from bringing legal action against your employer if you discovered, years later, you had developed asbestosis due to that exposure.

What Are the Legal Requirements of a Settlement Agreement?

Settlement Agreements are not legally effective unless the employee has received independent legal advice on the terms and effect of the agreement.

The ACAS Guide specifies that an employee should be allowed up to ten days in which to consider the offer of a Settlement Agreement as a matter of good practice; in reality, there is no legal requirement for employers to provide an employee with a reasonable amount of time in which to consider the terms of the agreement (although it is normally recommended that a reasonable period of time is given to the employee for various reasons).

If an employer is seeking to pressure you into signing a Settlement Agreement without giving you a reasonable period of time in which to consider the terms of the agreement then you should flag up to your employer what the ACAS Guide recommends in terms of timelines, and seek an extension of time in which to consider the terms.

What Are the Advantages of Settlement Agreements?

A Settlement Agreement can be beneficial to both parties. For the employee, it ensures they have the certainty of being compensated for the loss of their job as well as the promise perhaps of a good reference for their next position.

For the employer, it can mean they avoid costly outcomes such as having to go through an Employment Tribunal or there being a dispute over the terms of dismissal. 

Are There Any Disadvantages of Settlement Agreements?

• If an agreement cannot be reached it may jeopardise the employment relationship moving forward so that the employee is forced to resign.
• It may allow your employer to avoid dealing with any issues or grievances or any other issues outstanding.
• You are waiving your rights to bring a claim against your employers in the future.

Am I Able to Negotiate the Settlement Agreement I’ve Been Offered?

Yes, it is possible to seek legal advice and to negotiate the terms of the agreement offered. 

What Happens if the Settlement Agreement is Breached?

Once a Settlement Agreement has been signed by both the employer and the employee, it becomes a legally binding document. If either party breaches the terms, for instance, if the employer fails to pay or if the employee brings a claim, the wronged party will be entitled to raise a claim in the courts for a breach of contract.

The usual remedy for breach of contract is a claim for damages for loss suffered as a result of the other party’s breach. If there is an enforceable repayment clause in the Settlement Agreement, an employee who later breaches the terms of their Settlement Agreement may be ordered to repay all or some of the money they were paid by the employer, together with any legal fees incurred by the employer.

Employment Law Solicitors in Sheffield and Barnsley

How We Can Help Employees with Settlement Agreements

If you have received a Settlement Agreement from your employer then get in touch straight away to seek advice and assistance.

How We Can Help Employers with Settlement Agreements

We can assist you with drafting the terms and conditions of Settlement Agreements for employees and advise on the full process and procedures which need to be adhered to.

Whether you are an employer or employee, we can help.  Get in touch with our Employment Law Specialist, Nikki Sharpe, today on 0114 3583134 or send an enquiry via our contact page