What is a settlement agreement and why do you need one?

A settlement agreement is a type of legally binding contract that lays out specific terms between an employer and an employee. They are generally used to terminate an individual’s employment on agreed terms. Such agreements will often result in the employee receiving a form of payment.

This type of contract can be offered at any time and is completely voluntary. There is no legal requirement to have one. They are recommended because they can help avoid a disagreement turning into a court battle, and often save time and money as well. In fact, they’re sometimes used in cases where the employer has followed a completely just process, or the employment has ended on amicable terms.

Acas’ settlement agreement template can help you see what they should look like in practice. However, to fully understand what a settlement agreement requires and how it will work in your particular situation, it’s advised that you seek out the support of an expert in the area, like Optimal Solicitors. We have many years of experience and will have dealt with many similar cases to yours. You can get in touch with us today.

Is a settlement agreement the same as a compromise agreement?

Yes, settlement agreements were originally called compromise agreements until 29th July 2013.

A settlement agreement is also similar to a non-disclosure agreement. Non-disclosure clauses often form part of such an agreement.

What is the purpose of a settlement agreement?

Settlement agreements are used by an employer to make sure that a staff member does not later try to make a specific type of employment tribunal claim against them. A settlement agreement can also be used to resolve a workplace dispute (such as a disagreement over holiday entitlements) more quickly, or to avoid a lengthy process for matters such as performance or redundancy.

Can an employee request a settlement agreement?

Though it is more common for the employer to propose this type of contract, an employee can too. They can be very beneficial for them, particularly in instances where they’ve been discriminated against or unfairly dismissed. They’ll be able to guarantee financial compensation, and avoid the time, stress, and uncertainty that is generally associated with a tribunal.

How does a settlement agreement work?

The employee is given a reasonable period of time to consider the settlement agreement offered. While there is no law to determine what is ‘reasonable’, it is usually 10 days unless agreed otherwise. It is not required for the parties to enter a discussion about the terms, though there is usually a negotiation process. This will give each party the opportunity to make proposals and counter proposals until either there is an agreement or it’s determined that an agreement cannot happen.

In this situation, a resolution may be sought. It’s important to note that this will depend on the disagreement or issue at hand. The type of resolution will be what is deemed most fitting to the case: there could be a mediation or a performance management, disciplinary, or grievance process.

What to know before negotiating

It’s wise to know what you’re getting yourself in for before you begin the negotiation process. You should learn about a few basic areas, including expected settlement agreement payment terms and demand letters.

Settlement agreement advice

Here are some recommendations to help you go about the process correctly as an employee:

• Think carefully before deciding whether to enter into settlement negotiations. Can you obtain new employment if you terminate your contract?
• Instruct an independent solicitor to advise you on the terms of the agreement
• Be realistic. Do you wish to stay in the company if they want to monitor your performance or go down a disciplinary route?

How much should I get from a settlement agreement?

The amount of money you could receive will depend on the case in question. There’s no legal minimum settlement agreement payout, although there can be maximum compensation limits for employment tribunals.

The following are the types of financial payments likely to be contained in a settlement agreement:

• Contractual payments (until the employment ends)
• Payment in lieu of notice
• A termination payment
• Arrangements related to bonus or commission payment, share schemes, and long-term incentive plans
• Pension payments
• Any further sums to be considered for new clauses of confidential or potential post-termination restrictions

You may receive non-monetary compensation too, such as a reference, garden leave, or company property (e.g. a car).

Who can advise on a settlement agreement?

It needs to be a relevant independent adviser. Either a:

• Qualified lawyer (such as a practising barrister or solicitor)
• Trade union official
• Voluntary sector worker who has been certified as capable, and authorised to act on behalf of the advice centre

Negotiating the settlement agreement

It’s not as simple as just being presented with a proposed settlement agreement. It needs to be negotiated and understood too. A solicitor can help with this. You can contact our settlement agreement solicitors who can make sure the agreement is fair, maximise financial compensation, and advise you of any risk.

What is the process for negotiation?

Negotiations can be carried out either face to face or through written communication. There is no legal right to be accompanied by a colleague or trade union representative at any meetings, but an employer will often allow this as it can help to progress discussions.

The employer will present you with a proposed confidential settlement agreement. Following the reasonable time period to consider the offer and receive independent legal advice, there may be multiple offers and counter-offers – until either a final settlement agreement is reached or it’s clear that it cannot be reached.

What conditions must be met to reach a settlement agreement?

It should be a written settlement agreement, and relate to a specific grievance or proceedings. Before signing, you’re required to have received advice from an independent adviser. This adviser must hold a current contract of insurance in the event that you experience loss due to the guidance they provide.

A settlement agreement should also detail who the adviser is, along with all the conditions to be agreed on.

Specific terms may also be negotiated. These could be clauses related to confidentiality, or those that state that neither you nor your employer will criticise each other.

What happens if you don’t accept a settlement?

It’s important to consider if what is being offered to you is the best outcome you could receive. It may be that a better contract isn’t proposed. In the event that you have been unfairly treated, you could still make a claim – but it might be that you don’t get as much money as the amount stated in the original agreement.

You should know that if you don’t agree and your employer has promised to pay all or a portion of your solicitors’ fees as part of the provisions proposed, then you may need to pay these yourself.

What happens after ending the employment relationship?

There should be an agreement of required notice within the contract, if applicable. Details of timing and the payment will be included. All payments should be made as soon as is feasible following the signing of the settlement contract. It is then a legally binding document, and all clauses will then also come into effect.

Breaching the agreement

While an employment settlement agreement should prevent any breaches in theory, this is not always the case.

What will happen if the agreement is breached?

If either you or your employer breach any of the terms within a settlement agreement (for example, an employee brings a claim or the employer does not pay the required payments on time), this could potentially pave the way for a damages claim to be brought by an employer for breach of contract.

In the situation that there is an enforceable repayment clause, then an employee who has breached a term could potentially be required to repay either all or some of the money that they received. They could also be ordered to compensate the employer for any legal costs that resulted from the breach.

What should I do if there has been a settlement agreement breach?

Whether it is you who has breached the conditions of the contract or your employer, it is always advised that you seek legal advice. They could work through your options and then help resolve the situation, potentially taking matters to court if needed.

It’s recommended that you turn to a settlement agreement specialist. They will have extensive knowledge and experience in cases like yours, and will therefore know how to achieve the best result for you.

Optimal Solicitors can support you not just in the event of a breach, but in preventing such a situation from happening in the first place. This is because we will make sure that you fully understand the agreement you’re signing, and that the paperwork makes it clear what is required from both parties. Speak to our team today to discover how we can tailor our support to your specific situation.