Settlement Agreements for Employers
A settlement agreement is a legally binding agreement between an employer and employee which generally sets out the full terms between the two parties upon termination of employment. Once a settlement agreement has been signed by the employer, the employee and the employee’s solicitor it become binding and the employee will only be able to take the employer to a court or employment tribunal in very limited circumstances.
The agreement will provide specific details of termination payments which may include:
✔ The Notice Period
✔ A Tax-Free Sum
✔ A Redundancy Payment
✔ Holiday Pay
✔ Any Bonus Payment
✔ Other Relevant Sums
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In return for receiving these payments as part of a settlement agreement, an employee usually agrees not to bring any legal claims against his or her employer. If a claim has already been brought, the claim must be withdrawn. Settlement agreements are one of the main ways that employees can be prevented from exercising their employment rights in an employment tribunal.
What are the benefits of a settlement agreement?
Settlement agreements are beneficial to both employers and employees. An employer will have peace of mind knowing that an outgoing employee is unable to bring any claim against it, will be bound by various confidentiality provisions and may also be able to retain the life of restrictive covenants in the employee's employment contract. An employee will have the security of a termination document setting out what financial settlement they will receive, alongside other aspects of their employment termination such as a job reference.
Settlement Agreements may be offered in many situations, whether during or after employment. Some example include as a result of a disciplinary or redundancy process. Another example is where there has been an ongoing dispute. Employers may take the view that the risk of litigation or contention is too high; therefore, a more pragmatic option will be a settlement agreement.
It may also be the case that a company prefers to ensure that the parting between it and the employee is codified in such a way as to provide clarity on exit terms. This also provides peace of mind for both parties knowing where they stand on things like post-termination restrictive covenants and confidentiality.
Get in touch with us to discuss having a settlement agreement drafted for your business.
When might a settlement agreement be offered?
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