Settlement Agreement Solicitors
Bexleyheath, Blackheath & Petts Wood
What is a settlement agreement?
A settlement agreement (known as a compromise agreement prior to the Enterprise and Regulatory Reform Act 2013) is a legally binding agreement between a business and an employee under which an employer will pay to an employee financial compensation in return for an employee agreeing to settle their potential claims.A settlement agreement can include an agreed reference or the continuation of other benefits.
Under new provisions which have been inserted into the Employment Rights Act 1996 settlement agreement discussions cannot now be used as evidence within Tribunal proceedings.
When will a settlement agreement usually arise?
Claims may arise on recruitment, whilst an employee is still employed by a company or after the employee’s contract of employment has terminated.An agreement will usually be in return for an employee leaving the business, or to settle an existing claim in a way that allows the employee to continue working within the business and to salvage the working relationship.
They can help bring a dignified end to an employer/employee relationship which has broken down and can prevent the costs and stress of an employment tribunal claim.
What requirements need to be satisfied in order for there to be a valid settlement agreement?
- It must be in writing.
- It must relate to a particular complaint or particular proceedings.
- The employee must have received legal advice from a relevant independent adviser (for example, a qualified lawyer or union official) about the terms and effect of the proposed agreement and its effect on their ability to pursue any rights before an employment tribunal.
- The independent adviser must have a current contract of insurance (or professional indemnity insurance) covering the risk of a potential claim against them by the employee for the advice.
- The employee’s adviser must be identified.
- The agreement must specifically state that the conditions regulating settlement agreements have been satisfied.
We shall ensure that any legal requirements are met on your behalf.
Which types of claim can be settled by a settlement agreement?
A large number of statutory claims can be settled by a settlement agreement, for example:
- Unfair dismissal.
- Discrimination, victimisation or harassment
- Pregnancy or maternity-related discrimination
Which common clauses are included within a settlement agreement?
We would usually expect the following clauses to be within settlement agreements;
- Compensation for loss of employment. This will usually be tax free up to £30,000.
- A contribution to legal fees. Your employer will usually pay your legal fees relating to advice given in relation to the contents of the agreement.
- A list of potential claims that the employee agrees to settle in return for financial compensation.
- Imposition of a restrictive covenants or modification of a covenant. These clauses will often stop you from doing something, such as working for a rival company and therefore it is important that they are dealt with reasonably and appropriately.
- Indemnity from employee in relation to tax and National Insurance Contributions. As an employee receives the benefit of the money, it is usual for the employee to offer an indemnity.
- Clauses protecting confidential information are usually crucial to a business and therefore settlement agreements often contain confidentiality provisions, for example, the employee agrees:
Not to use any confidential information of the business.
Not to disclose any confidential information to any third party.
To keep the terms and existence of the settlement agreement confidential from immediate family members, prospective recruitment consultants etc.
Not to make any derogatory comments about the employer (or any individuals employed by it) to a third party.
Which types of claim cannot be settled by a settlement agreement?
There are a number of statutory claims that cannot be settled by way of a settlement agreement, these include some types of:
- Personal injury claims.
- Pension claims.
- Claims following the transfer of a business.
Acas has published a booklet entitled ‘Settlement Agreements: A Guide’ which explains what settlement agreements are, their effect and how to effectively negotiate terms.