What is a settlement agreement?
A settlement agreement is often referred to as a ‘severance’ or ‘redundancy agreement’ and previously a ‘compromise agreement’.
In short, a settlement agreement is a legally binding contract that prohibits employees from suing their employer, usually after they have received a sum of money in return for agreeing not to bring certain claims against their employer.
Once a settlement agreement has been signed an employee will no longer be able to make an employment tribunal claim or any other type of claim that has been listed in this agreement.
For a settlement to be legally binding, an employee must receive independent legal advice. Here at Stephensons, our specialist settlement agreement team will be happy to provide you with the advice you need, and guide you through the process.
Requirements of a legally binding settlement agreement:
- A settlement agreement 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
The employee must seek specialist independent legal advice before signing the settlement agreement. The employment solicitor should advise the employee on any potential claims so that the employee fully understands the legal issues and the value of any potential claims.
As employees have rights under UK law, anyone signing a settlement agreement should seek legal help before signing as a solicitor will make sure your rights are protected and that you are aware and fully appreciate these rights before you sign them away.
These rights fall under three main categories:
Contractual rights – These rights are set out in your contract of employment and will state your job title, your holiday entitlement, your right to be paid a salary, any other benefits as well as your notice period.
Common law rights – These rights are derived from the general law and regard how you are treated by your employer. These may involve aspects such as negligence, defamation and personal injury and any claims regarding these rights will have to go through the High Court or County Court.
Statutory rights – These rights derive from UK statute and any claims regarding these rights can only be pursued in an Employment Tribunal. These rights protect you from a wide variety of things including:
- Unfair dismissal
- The right to a statutory redundancy payment
- The right not to suffer unauthorised deductions from your wages
- 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.
- The right to receive a minimum wage
- The right to receive maternity and paternity rights
This is by no means an exhaustive list.
There are certain instances where rights may overlap and certain employee categories that have additional or different rights, so it’s vital you seek legal advice to make sure your rights are protected and that you fully understand which category you fall in to.
Without the appropriate legal advice, employees run the risk of signing away or waiving their rights by signing a document that they do not fully understand. With this in mind, the law encourages employees to seek expert legal advice to safeguard themselves from unscrupulous employers.
In order for employees to waive their statutory rights they must have agreed to either:
- Sign a valid settlement agreement with the assistance of a trade union adviser or lawyer; or
- Sign an ACAS settlement, which is also called a ‘COT3’ after legal proceedings have commenced.
What are the benefits of settlement agreements?
The advantage to the employer of getting a settlement agreement is that the employer can be sure the employee will accept the settlement and not seek further compensation. The advantage of a settlement agreement to the employee is that they receive a guaranteed amount of compensation in return for settling their claims.
Our settlement agreement solicitors can assist by:
- Advising you on whether any claims arise on the termination of employment
- If so, advise you what those claims might be worth
- In the light of that information, advise you whether the sum offered is reasonable in the circumstances
- Explain the meaning and effect of the agreement to you and advise you whether anything needs to be amended or changed
- Negotiate on your behalf as required
Why do I need a solicitor?
Settlement agreements can be written in very formal language and can refer to sections of Acts and Regulations which you may never have heard of. Therefore, it is important that you understand the effect of the settlement agreement. It is a legal requirement that you get professional advice on what the agreement means. It is also a legal requirement that your adviser signs the settlement agreement to confirm that advice has been given.
According to the Employment Rights (Dispute Resolution) Act 1998, that advice can only be given by a qualified lawyer, a qualified trade union official or a qualified centre worker, all of whom must be covered by an appropriate certificate of indemnity insurance.
Will I need to pay for this?
The cost of advice under a settlement agreement will in the majority of cases be covered by your employer, meaning that you may not have to pay anything for this advice personally.
What should I do next?
If you would like to speak to a member of the team in relation to a settlement agreement please complete our online enquiry form or call us on 0203 816 9302 and we will be happy to discuss your options and guide you through the process.