Settlement Agreements

When an employee is leaving a company, it can be an uncomfortable experience for all concerned.  It is for this reason that, in many cases, the employer and the employee choose to make an agreement that mutually benefits both parties.  It is important to set out all the terms clearly in such an agreement, called a Settlement Agreement (formally known as a Compromise Agreement), in order for it to have legal effect.

For Employers

When an employee’s employment comes to an end, most employers wish to limit their exposure to potential claims and liabilities from  disgruntled employees.  Therefore, many employers seek to draw up an agreement stipulating the terms of the employment termination, which both parties will agree to and sign.  A Settlement Agreement is a legally recognised and safe method of terminating an employee’s employment and finalising settlement. A Settlement Agreement lessens the danger of issues arising after the conclusion of employment, as well as offering peace of mind and security that the matter is safely concluded.

Litigation is a time-consuming and expensive process.  It could also damage the employer’s image and reputation as well as the morale of other employees.  It is therefore advisable for an employer to always offer a Settlement Agreement to the departing employees even if the employer believes the employee would depart on good terms or that the employee has no strong claims against the employer.  It is also worth noting that it is very unusual and certainly not common practice to award costs to the winning side at the Employment Tribunals, making an Employment Tribunal hearing less attractive.

A Settlement Agreement is designed to protect the employers’ interests and could therefore also include clauses of confidentiality or restrictive covenants in the Agreement, which may not previously been included in the employee’s employment contract.

For Employees

It is often a good idea to arrange an exit package with your employer through a Settlement Agreement.  Whilst you may be tempted to undertake legal action if you have had a negative termination experience with an employer, a Settlement Agreement is a much more attractive option for many reasons:

  • The benefit of accepting a Settlement Agreement is that it avoids any uncertainties.  The sums agreed under the Settlement Agreement could be received without any fight and of course uncertainty.  It is also worth noting that the first £30,000 agreed through the Settlement Agreement is tax free, provided that it is paid in connection with the termination of employment.
  • Your employer would usually pay your legal fees for obtaining advice on the terms of the Settlement Agreement.  This means you do not have to pay for your legal advice.
  • A reference can be agreed and form part of the Settlement Agreement.  This could be important to some employees, especially those who have a history of disciplinary issues and do not want such information to be disclosed in their reference letters.

Alternatively, in most cases, the employees would have three months to make a claim at the Employment Tribunal from the effective date of termination.

Our Settlement Agreement Services

A Settlement Agreement must be drafted in a specific format and must be signed by a legal professional, which is why it is vital that you seek the services of a solicitor if this is the course of action you wish to pursue. Lester Dominic Solicitors can assist by drafting settlement agreements and advising on the proposed terms of that agreement. We can provide same-day turnaround in most cases.

If you are unsure of whether a Settlement Agreement is the right option for you, we can assist by offering advice that might be helpful in order to determine the best course of action.

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