What is a Settlement Agreement?

A settlement agreement (previously known as a compromise agreement) is where an individual agrees that they will not bring an employment claim against an employer in return for an agreed settlement.

The employee agrees that they will not bring any employment claim for example: unfair dismissal, discrimination or a harassment claim. In return for this, the employer will offer a settlement figure and/or agree to provide a reference to a future employer.

A settlement agreement can be entered into at any point in the employment relationship, however they are most frequently used to end an employment relationship in a mutually agreeable way.

It is common for a settlement agreement to be used to end an employment relationship when an employee and an employer feel the relationship is no longer working – a settlement agreement can offer a ‘clean break’ for both parties.

In this situation, both parties can agree the basis for bringing the employment relationship to an end, for example when the employment will end.

Furthermore, settlement agreements can be used to conclude an on going workplace dispute or to resolve a scenario that does not end in termination of employment, for example a settlement agreement can be used to resolve a holiday pay dispute.

How is a settlement agreement created?

The terms to be included in the settlement agreement will be negotiated by the employer and employee and then drafted into a formal offer letter outlining the details of the agreement. The agreement can be made only between two individuals and cannot be signed or addressed to a group of people.

There are other legal requirements that must be ensured in order for a settlement agreement to be binding, these are;

• That the agreement must be in writing;
• The agreement must also expressly state the claim or claims that the employee will not bring against the employer.
• The agreement also must include a statement outlining that the statutory provisions that dictate the legal validity of settlement agreements are satisfied

Furthermore, independent legal advice must have been given to the employee in relation to the settlement agreement.

Settlement agreements must be drafted correctly to ensure that the employee is guaranteed their settlement and also so that once the employer has paid out, a subsequent claim is not brought against them. It is also important for employees to have legal advice so they can be sure they are getting the most beneficial agreement for them.

Important points about settlement agreements

- Settlement agreements are legally binding if properly created
- They mean that an employee waives their right to make a claim against their employer that is covered by the agreement. This includes the right to make a claim at an Employment Tribunal or Court.
- Settlement agreements are voluntary. Both parties are under no obligation to enter in to a settlement agreement and can refuse to do so.
- They are agreed through a process of negotiation and discussion. Parties do not need to accept the terms initially offered, subsequent offers and counter offers can be made.
- Negotiations for settlement agreements are made in confidence. The substance of the negotiations may not later be used as evidence in subsequent Employment Tribunal or court proceedings.

If you may need to enter into a settlement agreement, it is important that you receive excellent legal advice to ensure you are getting the best offer available to you. Our solicitors have a wealth of experience and expertise in this area so you can be confident that your interests are looked after.

Employment Law Advice in Aberdeen

If you need advice on any aspect of employment law, then our specialist solicitors at Employment Law Aberdeen can help. To get in touch please complete our online enquiry form.

 

How do I make an Unfair Dismissal claim?
As Many Holidays As You Want - Branson Questions S...

Related Posts

Contact Us

Please enter your name
Please enter a valid email
Invalid Input
Invalid Input
What type of help do you need? Invalid Input

Pick tick to confirm you have read this.
Invalid Input