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Settlement agreements
Settlement agreements
Settlement agreements

Settlement agreements

Thorneycroft’s specialist employment team has many years of experience advising both employers and employees on what are now called settlement agreements (previously called compromise agreements).

What is a settlement agreement?

A settlement agreement is a legally binding document made between the employer and the employee which settles, once and for all, any employment related disputes.

The settlement agreement process

An employee must seek independent legal advice for which the employer generally meets the associated legal costs. If it is necessary to negotiate the terms of the settlement agreement this can be done when the employee seeks independent legal advice. A common area of negotiation is when an employee seeks to obtain a reference from the employer. This can be incorporated into the terms of the settlement agreement.

There may also be restrictions contained in a settlement agreement which prevent the employee from contacting customers or competing with the employer and these will need to be considered carefully.

Both employers and employees may also need to consider the tax implications of a settlement agreement as it is possible that up to £30,000 may be paid without deduction of tax.

What does a settlement agreement contain?

Some settlement agreements may differ from others, depending on the specific circumstances. However most agreements will cover:

  • The termination date
  • Arrangements on termination
  • The reference given by the employer
  • The amount of money the employee will be paid
  • Confidentiality in relation to the agreement
  • The waiver on the employee’s part of any future claim against their employer
  • Extension of specific benefits after termination
  • Pay in lieu of the employees notice period

What are the legal requirements for a valid settlement agreement?

There are specific requirements that must be met, if the agreement is to be valid, which normally include:

  • The agreement must be in writing
  • The agreement must relate to a specific complaint held by the employee
  • The agreement must satisfy the relevant legislation
  • The employee must have received legal advice from a qualified adviser

How our employment team can help you

If you are an employee or employer requiring legal advice regarding a settlement agreement, call us for a chat today. We provide a comprehensive service that ensures your legal rights are being met or protected.

For further details on all business law related matters please contact Mark Bestley on 01625 507506 or 07825 081 856 or email [email protected]

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