The Stockbridge Spotlight Issue 99 June/July 2021

My Employer has presented me with a “Settlement Agreement”…

What is a Settlement Agreement?

A Settlement Agreement is a binding contract between an employer and employee and can be proposed for many different reasons. Our Employment Law Practice deals with these on a daily basis. We largely see them where there is a proposal to end the employee’s employment, for example due to a redundancy situation, a capability or conduct concern, or an employer feeling that things are “not working out”. However, Settlement Agreements can also be used to settle grievances or disputes that may have arisen even when the employment is to continue.

Where an employee is going to be leaving their employment under the terms of a Settlement Agreement, the agreement itself should be seen as creating a “clean break” in the majority of cases. Provided it meets particular legal requirements, it will usually result in the employee giving up certain defined legal claims they may have against their employer. The right to claim unfair dismissal, redundancy pay, or discrimination are classic examples. This is often why an employer may be keen that an employee enters into a Settlement Agreement.

However, this is also why the law requires an employee to have been given proper advice on the agreement by a “relevant independent adviser” before it can be effective.

What advice should an employee receive on a Settlement Agreement?

As experienced employment law solicitors, we start by getting as much relevant detail as to the background employment circumstances as possible, so that we can properly advise our clients on the relevant issues, the potential claims that may stem from these, and the merits of entering into a Settlement Agreement.

The vast majority of Settlement Agreements will include provision for some form of payment to the employee, so it is important for the employee to understand the value of any claims they may be giving up by entering into the agreement, and the merits of those claims ie their likelihood of success. It is also crucial that the employee is advised on what the employer may do if the employee does not agree matters. Is the employer likely to proceed to disciplinary action, or even dismissal? Could this be seen as fair by an Employment Tribunal? These questions allow us to properly assess the employee’s bargaining position, and that in turn can help our clients decide if they wish to accept an agreement, refuse it outright, or have us negotiate on its terms.

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