A Settlement Agreement is a confidential document that will prevent an employee from pursuing their employment rights, in return for a financial settlement.
Why have I never heard of a Settlement Agreement?
A Settlement Agreement is confidential and cannot openly be discussed, nor generally the circumstances leading up to it. It is for this reason that most employees may never be aware that they exist, unless they have previously received one, an immediate family member or spouse has been able to discuss their Settlement Agreement with them or they have had involvement issuing a Settlement Agreement on behalf of an employer.
Depending on the drafting of the Settlement Agreement, an employee may be able to discuss it with other parties, for example, their professional advisers and immediate family members. However, there is usually a further provision that they must also maintain confidentiality.
Is a Settlement Agreement just about money?
A Settlement Agreement, if signed, will prevent an employee from pursuing their employment rights, for example, a potential claim at an employment tribunal. The incentive for an employee to sign is usually financially based, that is, receiving a financial settlement that they would not otherwise be receiving.
What else does a Settlement Agreement do?
A Settlement Agreement does not only set out the financial settlement but may also include other non-financial provisions, such as confidentiality or that either party cannot make or publish, nor cause to be made or published, any derogatory or defamatory statements about the other. There can be many other clauses included within the Settlement Agreement.
Does an employer draft a Settlement Agreement?
The Settlement Agreement is issued by an employer to the employee, sometimes through a third party instructed to act on their behalf, such as an employment law solicitor. It might be something which the employer drafts or that someone such as an employment law solicitor will prepare for them.
Why does an adviser need to review a Settlement Agreement with an employee?
It is a requirement that an employee receives advice from an adviser in connection with a Settlement Agreement, such as an employment law solicitor. This is something that we do frequently. We advise in connection with employment rights and the Settlement Agreement itself. As this is a requirement, an employer will usually make a contribution towards the legal fees associated with the review of the Settlement Agreement. The amount of the contribution will vary and can sometimes be negotiated.
What is a good offer of settlement?
We find that there is no strict calculation or magical formula used when calculating a financial settlement as each case should be assessed on its own merit. There will usually be payments due such as salary and holiday pay which are subject to tax but also a tax free sum which is capped. There can be several kinds of payment provisions in the Settlement Agreement.
When can a Settlement Agreement be used?
A Settlement Agreement can be used in many scenarios, it is simply a means of usually ending the employment relationship (although sometimes it can be used during employment). We find the most common situation is when a position has been identified as being at risk of redundancy. Other scenarios might be long term absence, disciplinary or grievance related matters. It is often viewed as being by mutual consent rather than a dismissal or resignation.
Why enter into a Settlement Agreement?
As indicated earlier, an employee does not have to agree to enter into a Settlement Agreement. However, an employee might find it preferable to do so rather than to continue with a process, their employment or to pursue a claim. An employer may also find it beneficial as an employment claim cannot be pursued against it and it can avoid progressing through a lengthy and time consuming process, such as a redundancy procedure or a disciplinary procedure.
If you would like to discuss any of the issues in this blog, please contact us.
