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A guide to settlement agreements

View profile for Philip Richardson
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Settlement agreements, which used to be known as compromise agreements, are legally binding documents which can be used by both the employee and employer to resolve a dispute or end employment.

Settlement agreements are covered in the Employment Rights Act 1996 under section 111A and can request that you keep the terms of the agreement confidential. They are a way of avoiding costly and long litigation procedures or legal battles, and can offer an employee financial compensation (including other benefits) in exchange for not bringing a claim against an employer.

It is a legal requirement that, as an employee, you receive expert legal advice before signing the settlement agreement, otherwise it is not legally binding. Our specialist settlement agreement solicitors can offer a face-to-face meeting or speak with you over the phone. Generally, the legal fees for advice are paid for by the employer, but not in every case, so it is best to check with your HR department or manager.

What is a settlement agreement?

A settlement agreement can be used in a number of circumstances, including redundancy. As mentioned above, a settlement agreement is a legally binding document and once a settlement agreement has been signed, an employee will no longer be able to make any type of claim, listed in the agreement, against the employer.

For a settlement to be legally binding, an employee must receive independent legal advice from a qualified employment law solicitor. The solicitor will have to sign a document stating they have given the employee the appropriate legal advice.

The settlement agreement must also comply with the below for it to be legally binding:

  • It must be in writing
  • It must relate to a particular proceeding(s) or complaint(s)
  • It must be signed by the employee
  • The employee must have received independent legal advice
  • The legal adviser must be identified and insured
  • The agreement must state that the requirements regulating the settlement agreement have been satisfied

Can an employee request a settlement agreement?

Yes, an employee can request a settlement agreement. However, normally these are offered by the employer and they are not obliged to offer one to an employee who has requested a settlement agreement.

In what circumstances might I be offered a settlement agreement?

Typically, a settlement agreement may be offered by an employer at the end of an employment relationship. However, a settlement agreement for redundancy can be agreed upon and this will most likely happen in voluntary redundancy cases. A settlement agreement may also be used to resolve disputes or change the terms and conditions of employment. 

How long do I have to make a decision on whether to sign the settlement agreement?

How long a decision can take can be agreed on by both parties. However, ACAS, the Advisory, Conciliation and Arbitration Service recommend a minimum of ten calendar days. If an employer puts undue pressure on an employee to sign a settlement agreement, this may be seen as improper behaviour, which may invalidate some of the terms of the settlement agreement.

Do I have to seek legal advice before I sign a settlement agreement?

Legal advice must be sought by the employee before signing the settlement agreement for the document to be legally binding.

The employment solicitor has a duty to advise the employee on any potential claims they could perhaps bring if they were not to sign the settlement agreement. An employee must fully understand what their rights and options are and how the settlement agreement they are being asked to sign will affect those rights.

These rights fall under three main categories:

  • Contractual rights – these rights are set out in the contract of employment.
  • Common law rights –this relates to how an employee is treated by their employer, which may involve aspects such as negligence, defamation or personal injury
  • Statutory rights – these rights can only be pursued in an employment tribunal. These rights protect employees from the following:
    - Unfair dismissal
    - Statutory redundancy payment
    - Not to suffer unauthorised deductions from wages or salary
    - The right not to be discriminated against, based on certain prohibited grounds, such as marital status, gender, racial origin, sexual orientation, national origin, disability, religion, trade union membership and age
    - To receive at least the legal minimum wage
    - To receive maternity and paternity rights.

Employment law is complex and our expert settlement agreement lawyers help you understand what rights you are signing away in your specific case. Unfortunately, there are unscrupulous employers, so it's vital that the appropriate independent legal advice is sought to make sure you’re protected.

Can I negotiate the terms of my settlement agreement?

You can negotiate the terms of your settlement if you think you are in a position to do so, and both parties agree. You don’t need a solicitor to negotiate your terms, however, a solicitor can help you negotiate a better outcome. Typically, any legal costs to negotiations will need to be met by the employee. While an employer may pay for you to receive legal advice, they are unlikely to cover the costs of negotiating your settlement agreement. 

What does ‘without prejudice’ mean?

‘Without prejudice’ generally means that both parties can have frank and direct discussions regarding settling a dispute without what is said being used as evidence in a tribunal or court. The term ‘protected’ may be used if there is no dispute to indicate that the conversation regarding your settlement agreement cannot be used as evidence in an unfair dismissal claim. If your employer acts inappropriately then this protection may be lost. Improper behaviour can include:

  • Any form of harassment, bullying or victimisation
  • Discrimination based on protected characteristics
  • Physical assault or any other criminal behaviour
  • Putting undue pressure on a party, which can include not giving enough time to consider the agreement and threatening dismissal (when no disciplinary process has begun) if you do not sign the agreement

Do I have to keep my settlement agreement confidential?

Many settlement agreements now come with confidentiality clauses or non-disclosure agreements (NDAs). This may limit you in what you can say regarding the terms of your agreement and the reasons why you left your employer. There may also be a clause which prevents you from making inflammatory or derogatory comments about your employer. At Stephensons, we can help you understand any confidentiality clauses and advise you as to whether or not they are fair.

For more information speak to one of our settlement agreement solicitors today on 01616 966 229 . For general information take a look at the ACAS settlement agreement guide.