Everything You Need To Know About Employment Settlement Agreements

Your employer has mentioned the words 'settlement agreement'. What does it mean? What do I need to know?

Settlement agreements are contracts which stop employees bringing claims against their employers. They are known by many different names like ”termination agreement” and ”compromise agreement” but they all amount to the same thing.

What are settlement agreements for?

A settlement agreement is essentially a way for you and your employer to ‘bring your employment to and end on agreed terms. Under the terms, you will agree to give up your right to bring any claims against your employer and/ or settle an ongoing claim you may be entitled to bringing in a court or employment tribunal. Both you or your employer are able to suggest a settlement agreement.

I’ve been offered a settlement agreement – do I have to accept it?

No. But you must consider your individual circumstances and whether your employer might be able to terminate your employment anyway if you turn the offer down. If you turn down the offer, you might not get a better one. If you feel you’ve been treated badly, you may still be entitled to bring a claim. Remember, the terms of a settlement can be negotiated and must be agreed by both parties. Your solicitor will be able to advise you about what would be reasonable in your circumstances and can help you negotiate terms you are happy with.

What is in it for me?

Every case will be different. The benefit to the employee can be anything from a cash settlement payment to a good reference.

Do I need independent legal advice before I sign a settlement agreement?

Settlement agreements are not legally effective unless the employee has received independent legal advice about it. Employers usually agree to pay a fixed amount between £250 and £500 (plus VAT) towards your legal fees. At Sweeney Miller we will always agree a suitable fixed fee with you for advising you on your compromise agreement.

When might I be offered or ask for a settlement agreement?

Here are some examples of situations where a compromise agreement might be used:

-Your employer has evidence that you have committed gross misconduct or is unhappy with your performance. You may be offered a settlement agreement as an alternative to going through the usual disciplinary procedure, in return for you going quietly. Your employer might offer to provide you with a basic reference, allowing you to find a new job without the stress of going through a disciplinary process and risking a summary dismissal on your employment record.

-You have brought an unfair dismissal claim against your former employer. You have a good case and the employer wants to avoid the matter going to the employment tribunal. A settlement agreement can be used to settle the claim for an amount agreed between the parties.

-Your post is being made redundant and your employer wants to use a settlement agreement to avoid having to go through a consultation process. You might be offered extra redundancy pay or pay in lieu of working your notice in return for signing the agreement.