When your employer provides you with a settlement agreement, it can be a worrying and upsetting time, especially if you aren’t familiar with the process. Litigation solicitor Christopher Thomas explains what a settlement agreement is and answers your frequently asked questions.
What is a settlement agreement?
A settlement agreement is a legally binding contract made between an employer and an employee, usually following a workplace dispute or when employment is coming to an end, by redundancy, for example.
Why would an employer offer a settlement agreement?
Employers often offer settlement agreements when they want to end an employment relationship on agreed terms. The agreement will typically include a payment to the employee, along with other agreed terms such as notice pay, references or confidentiality provisions.
The agreement protects the employer from a counter tribunal claim.
Settlement Agreements and Redundancies
If an employer needs to make redundancies, it must follow a fair process before selecting 1 or more employees.
Instead of going through a redundancy process, an employer may decide to offer employees a payment through a settlement agreement instead.
What makes a settlement agreement legally binding?
Several aspects need to be considered for a settlement agreement to be legally binding. According to Section 203 of the Employment Rights Act 1996, the agreement must be:
- In writing
- Must relate to a specific complaint or proceedings that have led to the employee being made redundant
- Independent legal advice is a must. A solicitor needs to inform the employee of the terms and effect of the agreement, and the impact it would have on their ability to pursue a complaint at an employment tribunal
- Identifying the solicitor who offered the employer independent legal advice, which must also be covered by insurance
- The settlement agreement must meet all the legal requirements of the Employment Rights Act
How long do I have to consider a settlement agreement?
There is no fixed statutory deadline from receiving a settlement agreement to having it signed. Employers need to ensure they act reasonably, as rushing an employee could invalidate the process and ultimately support a tribunal claim. According to the Acas Code of Practice on Settlement Agreements, employers should allow a minimum of 10 days for employees to consider the proposed settlement agreement and receive independent legal advice.
Do I have to agree to a settlement agreement?
To determine whether the agreement is a good deal, you need to weigh up why you’re being offered the agreement and what rights you are being asked to give up if you decide to sign it.
You do not have to sign a settlement agreement. If you choose not to sign, you retain your right to make a claim against your employer at a later date. Whilst you don’t have to agree to a settlement agreement, you must discuss your options with your solicitor, who should advise you on the likely outcomes of each possible course of action and suggest how you should proceed.
Never be afraid to ask questions about any part of the process. Your lawyer is there to help you.
Can an employer withdraw a settlement agreement offer?
Yes, an employer can withdraw a settlement agreement offer at any given time before it has been signed.
What happens after a settlement agreement is signed?
Once the employee has received independent legal advice (which has been certified) and the agreement has been signed, it becomes a legally binding agreement, and both sides must follow the terms of the agreement and its confidentiality rules.
Who pays for the independent legal advice service?
Your employer should pay for your independent legal advice. Whilst this suggests you don’t pay for your legal fees, employers often offer a cap on financial contributions to cover your legal bill. Unless your fees go past the employer’s cap, your solicitor will usually send their invoice directly to your employer.
Any costs that are above your employer’s cap become your responsibility.
How we can help
Our employment lawyers regularly advise on settlement agreements. We will provide clear, practical advice to help you make an informed decision. We’ll review the agreement, explain your options without legal jargon and, where appropriate, negotiate better terms on your behalf to help secure the best possible outcome.
“I had a very smooth redundancy settlement worked through with the Amphlett Lissimore team, now knowing what was involved myself they guided me through each step and ensured what was best for me was actually being worked towards”
– Tony, Client Feedback.
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