Settlement Agreements

Settlement Agreements (formerly Compromise Agreements)

Settlement agreements are legally binding contracts which can assist when a party wishes to end their employment on agreed terms, and/or can waive an individual’s right to make a claim to a Court/Employment tribunal. They are also useful where there is a dispute in the workplace which could involve a disagreement over sick pay or holiday pay, as examples. An employer or an employee can suggest the use of a settlement agreement. Settlement agreements must always be in writing. They usually include some form of agreement to pay a sum to the employee and can also include a reference from the employer in respect of the employee.

By signing a settlement agreement, an employee is no longer able to make a claim via an employment tribunal, for any of the types of claim which are listed in the agreement.

What constitutes a legally binding settlement agreement?

In order for the Settlement Agreement to be binding, it must satisfy the following criteria:

1.It must be in writing;

2.The employee must have sought independent advice from someone such as a lawyer or a certified or authorised member of a trade union/body;

3.The adviser referred to above must be identified in the agreement;

4.The adviser must also have a current contract of insurance or professional indemnity cover, which would cover the employee if a loss were to arise as a result of the initial advice;

5.The agreement should be specific so that it refers to a particular complaint or set of proceedings;

6.The agreement should also refer to and state that any relevant statutory conditions regulating the agreement have been met.

Other points for consideration

Settlement agreements can be a useful tool for negotiation for all parties concerned, and there can be a period for the parties to make proposals and counter proposals which hopefully can be agreed between the parties. They are also voluntary, and neither party can be forced to discuss settlement agreement proposals, or indeed agree to the use of one.

It is good practice to allow an employee 10 calendar days in which to consider the terms of the settlement agreement, unless another time is agreed between the parties.

There may be a meeting to discuss the settlement agreement and although there is no statutory right for the employee to be accompanied at such a meeting, it is considered good practice on the part of the employer, to allow someone to accompany the employee.

The settlement agreement could also include specific provisions regarding notice periods which can be agreed between the parties, if not being ended with the required notice.

Finally, details of payment should be included in the agreement, and furthermore there should be detail regarding the timing of such payments.

whether you’re an employer or employee we’d be happy to hear from you. Please ask for Howard or Kelly