Settlement agreements

Thorneycroft Solicitors’ 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 (compromise) 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.

One of the most important terms of a settlement agreement is that the employee contracts out of their employment rights which means that the employee cannot subsequently bring a claim against the employer in the employment tribunal.

The settlement agreement process

An employee must seek independent legal advice for which the employer generally meets all of the costs. If they want to negotiate the terms of the settlement agreement, this can be done when seeking 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.

Once the employee has obtained independent legal advice and the terms of the settlement agreement have been agreed, both parties sign the agreement and it then becomes binding.

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 prior to termination
• 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
• Details of the employee’s legal advisor
• The agreement must satisfy the Employments Rights Act 1996
• The employee must have received legal advice

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.

Your next step

To find out more or to discuss your circumstances further, contact Mark Bestley
on 01625 507506 or 07825 081 856 or email [email protected]