What is a Settlement Agreement?
A Settlement Agreement (formerly known as a Compromise Agreement) is a contract where the employee agrees to waive his or her legal claims against the employer on agreed financial and other terms. Settlement agreements are commonly used as a means of resolving disputes between an employer and employee and/or a way of terminating the employment relationship by mutual agreement. Settlement Agreements are often proposed by employers during a redundancy process or if there are capability, misconduct or other disciplinary issues, or if the employee has filed a grievance.
Negotiations on a settlement agreement will typically take place on a ‘without prejudice’ basis. This means that if negotiations break down, discussions cannot be referred to in employment tribunal or court proceedings unless there has been ‘unambiguous impropriety’. Often employers will open a ‘protected conversation’ under section 111A Employment Rights Act 1996 which provides that pre-termination negotiations are confidential and cannot be used in evidence in unfair dismissal proceedings providing there has been no improper behaviour. Improper behaviour would include intimidation, bullying or harassment, discrimination on the grounds of race, sex, disability etc, or putting undue presusre by failing to give the employee a reasonable time to consider the settlement agreement.
If you are an employee and have been given a draft Settlement Agreement, call us to make an appointment. A face-to-face or telephone conference will be arranged at no cost to you. During the conference, we will discuss the background to the matter, advise you on your potential claims, statutory and contractual entitlements, and the terms and effects of the proposed agreement. The advice will include whether you should negotiate an increase in the settlement sum and/or other amendments to the agreement such as inserting an agreed employment reference. If you would like amendments made, we can negotiate these on your behalf with your employers. When the agreement is finalised, you then proceed to sign it, and we will sign the ‘Adviser’s Certificate’ confirming that we have advised you on the agreement. We will then send the executed agreement to your employer with a copy of our invoice, which they will usually be obliged to pay directly.
What are the requirements of a Settlement Agreement?
In order for an employee validly to waive his or her claims in the employment tribunal, the Settlement Agreement must fulfil certain statutory conditions. Those conditions are that:
1. The agreement is in writing.
2. The agreement relates to the particular proceedings that are being settled.
3. The employee has received advice from a relevant indepedent advisor as to the terms and effects of the agreement and in particular its effect on his/her ability to pursue his/her rights before the employment tribunal.
4. The adviser must be properly insured.
5. The agreement must identify the advisor.
6. The agreement must state that the conditions regulating settlement agreements have been satisfied.
Why take legal advice before entering into a Settlement Agreement?
If you are an employer, you should take legal advice to ensure that the Settlement Agreement is valid and enforceable and the above conditions are satisfied.
If you are an employee who has been offered a Settlement Agreement, your employer is likely to insist that you take legal advice before signing the Settlement Agreement, otherwise you will not validly have waived your employment tribunal claims. The requirement for legal advice is there for your protection, so that you know what your employment rights are before signing them away.
Standard terms in a Settlement Agreement
In addition to clauses about payment terms and employment references, Settlement Agreements usually contain terms preventing one or both parties from making disparaging statements about the other. If the parties are parting on bad terms, the employee may wish to insist that the employer does not make disparaging statements about him or her to potential employers. Settlement Agreements also often require the employee to keep the Settlement Agreement confidential and to return property. The first £30,000 of compensation for loss of employment can be paid tax-free, but often employers will ask that the employee to provide a tax-indemnity.
Who pays for the advice on the Settlement Agreement?
Usually, the employer will contribute a sum towards the employee’s legal costs. In most cases we handle, this will cover the employee’s legal costs in full.
What if I decide to bring a claim in the Employment Tribunal?
If you decide not to enter into a Settlement Agreement, we can act for you in pursuing a claim in the Employment Tribunal. We have substantial experience in acting for clients in their Employment Tribunal claims on a range of matters including unfair dismissal, complex discrimination claims, whistle blowing claims, redundancy pay, breach of contract and unlawful deduction of wages.
I live outside of London, can I still speak to you?
Even though we are based in London, we have many clients further afield. If you are based outside of London please contact us today and we can arrange a telephone conference.
Why instruct Knight-Webb Solicitors?
The Principal Solicitor, Sunita Knight-Webb, is an experienced employment law specialist, with a degree in law from Cambridge University. We are thorough in our approach to Settlement Agreements, and provide sound, practical, cost-effective advice.