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What Is A Settlement Agreement?

Apr 23, 2015

A settlement agreement can be used by an employer to offer an employee the chance to leave their employment with a financial settlement and normally a good reference to take with them, with the express understanding that they cannot take them to an employment tribunal.

Settlement agreements, formally known as compromise agreements, can be used in a number of different circumstances. Perhaps an employer does not want to go through the redundancy process or there are disciplinary issues and therefore try to get their employee to agree to a settlement agreement.

There are pros and cons for both parties for using this type of agreement. The employee may feel that they are getting a substandard financial package and as they are signing away their rights to an employment tribunal, they are completed unprotected. However, the consequences of not accepting the settlement agreement may mean dismissal, no financial payment and no reference to take to another employer, so it is a difficult decision to make.

It is important therefore to consider your options carefully and to get proper legal advice about the settlement agreement, which in fact forms part of the legal requirements of the agreement.

Some of the legal requirements that need to be included in a settlement agreement are:

  •          It has to be in writing
  •          The employee must have independent legal advice
  •          It has to identify the legal representative who has given the advice
  •          It must confirm that they are insured to offer the advice
  •          It must be signed by the employee
  •          It must specify the specific claim types that are excluded by the agreement
  •          It must confirm that it meets the legal requirements of a settlement agreement

Whether you are an employee who has been offered a settlement agreement, or you are an employer who want to offer a settlement agreement to an employee, you need to make sure that you have considered all of the consequences of the agreements and that you have had proper professional advice.

If you would like to know more about how a settlement agreement could work for you, whether you are an employer or an employee, call Richard Gregory on 01264 353411 or email employment@bsandi.co.uk and we’ll be happy to help.


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