A Settlement Agreement, also known as a Compromise Agreement or COT3 Agreement, is a legally binding contract between you and one of your employees. Settlement agreements can be used to bring the employment relationship to an end and document the terms upon which you have parted company with your employee. In return for you offering the employee compensation, they agree to waive their right to bring claims against the Company in an employment tribunal.
A settlement agreement can be used in circumstances where there is a potential dispute or simply to facilitate a swift clean break between the parties.
For a Settlement Agreement to be validly binding and enforceable, the following statutory conditions must be met:
- The agreement must be in writing.
- The agreement must relate to a particular complaint or particular proceedings.
- The employee must have received independent legal advice on the Settlement Agreement and in particular on its effect on their ability to pursue the statutory rights in question.
- The adviser must be identified in the Settlement Agreement.
- The adviser must have professional indemnity insurance in relation to the advice given.
- The Settlement Agreement must state that the conditions regulating Settlement Agreements in the relevant legislation have been met.
It is essential to ensure that you draft a settlement agreement carefully and tailor it to the circumstances relating to the employee’s exit. There are many issues to consider in the preparation of a settlement agreement.
How you treat payments for notice, salary, holiday and compensation are critical, especially in relation to the treatment of tax. You should consider including a tax indemnity clause. You should also ensure that the settlement agreement facilitates a ‘clean break’ and that any ongoing employment tribunal proceedings are withdrawn or that the company is adequately protected from any future litigation. You also need to consider the return of all company property and how you will safeguard the company’s confidential information and ensure that the existence and terms of the settlement agreement itself are kept confidential. You need to consider any ongoing contractual restrictions and how to word an appropriate reference or public announcement.
We can work with you to negotiate the terms of a settlement proposal and prepare the agreement on your behalf to ensure that your business is properly protected. We can liaise directly with your employee’s legal adviser to conclude the agreement swiftly on your behalf.
Bulk Settlement Agreements
Our employment team is routinely called upon by businesses to provide independent legal advice to their employees on the terms and effect of settlement agreements.
We will act for and advise your employees and so will remain completely independent from you (as their employer), although we will liaise with you or your legal advisers to facilitate the process and agree the terms. We can do this either by attending the workplace, meeting the employees at our offices or advising over the telephone.
We can make the settlement agreement process more economical and efficient for you with a lower fee contribution, avoiding duplication, and reducing the administrative burden as you will only need to deal with one firm of solicitors.
Call to speak to one of our specialist Employment Solicitors in Coventry and Warwickshire on 024 7623 1000 and we could be advising you about Settlement Agreements today.