A Settlement Agreement (formerly known as a compromise agreement) is an agreement whereby an employee agrees not to pursue certain employment related claims against their employer, usually in return for financial compensation. Commonly, Settlement Agreements are used to record the agreed terms of the employee’s departure, including any payments due to them and claims being waived.
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 a lot of 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 and you should consider including a tax indemnity clause. You should ensure that the agreement facilitates a ‘clean break’ and that any ongoing employment tribunal proceedings are withdrawn or that the Company is adequately protected from any future litigation.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 is kept confidential. You need to consider any ongoing contractual restrictions and how to word an appropriate reference or public announcement.
Bulk Settlement Agreements
There may be occasions where you are offering Settlement Agreements to a number of employees, for example, following a large-scale redundancy program/re-organisation or workplace closure.
Our Employment Team are 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 advisors to facilitate the process. We can do this either by attending the workplace, meeting the employees at our offices or advising over the telephone.
We can make the 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.