Settlement Agreements – Employee Information

Settlements Agreements came into being by legislation in July 2014 and they replaced a similar Agreement that was known as a Compromise Agreement.

What is the Settlement Agreement?

A Settlement Agreement is a document that is normally drafted by an employer. It sets out the terms upon which an employer and employee have agreed by mutual consent to bring about the end of the working relationship

The rationale behind Settlement Agreements is that when an employee’s working relationship with his or her employer comes to an end, they may have employment claims. By signing the Agreement, the employee will be wavering their rights to pursue any claims they may have. Alternatively, Settlement Agreements might be offered in a situation where an enhanced redundancy or remuneration package is offered. 

An employee can be put under improper pressure to accept a Settlement Agreement, and this is where we can help. In order to be legally binding, an employee must obtain independent legal advice about the terms and implications of acceptance of the Agreement. 

Our Specialist Employment team can give employees advice on whether the Agreement is appropriate for them to sign. In doing so, we will advise whether in our view the terms can be improved upon, both in relation to financial settlement, and other terms which may be incorporated, such as a pre agreed reference, so moving forward you have comfort that only the agreed reference will be provided to a prospective employer. 

If you have never received a Settlement Agreement before, the size of the document can be a bit overwhelming. The document will confirm details such as the termination date, the payments that are to be made for any outstanding holiday pay, notice monies, outstanding bonus monies, redundancy payment if appropriate and what other payments are to be made to the employee as compensation for loss of employment. It should also set out the tax treatment of different payments. 

Other terms which are regularly incorporated into such Agreements include confidentiality provision, and that the parties should not make any disparaging or derogatory comments about the other. Obligations regarding return of property as well as post-employment covenants can also feature.   

The employer will normally contribute towards the cost of the employee having independent legal advice, and sometimes it may be necessary to seek the employers agreement to increase this contribution; albeit the employer does not have to consent to this. 

If you have received a Settlement Agreement, get in touch with a member of our specialist employment team who will be able to advise you not only on the terms, but whether the settlement proposal is fair, or could be improved upon.