We’ve been getting involved with a lot of settlement agreements lately and Ian Abel (our Head of Employment) just wanted to say a few things about them.
The Settlement Agreement (previously known as a “compromise agreement”) has been recognised in law since 29th July 2013. It is a legally binding agreement between employer and employee and it’s usually written following the termination of employment; in essence it simply sets out the terms for an amicable break.
The main benefits of entering into a Settlement Agreement is that it provides a level of certainty between both parties – the employer will receive a level of safeguard in that you will not bring legal action against them by waiving your employment rights and that you will not discuss the termination of the contract with anyone; from an employee perspective the agreement will confirm the payment that the business is willing to make in order to terminate the contract (which is likely to be higher than the amount due to you under your contract of employment – an inducement if you like to sign the agreement), any details of references that the business is willing to provide, and assurances that as this is an amicable split they will not ‘bad-mouth’ you once you have left the business to your colleagues, partners or clients etc.
The settlement agreement only becomes legally binding once you (as the employee) have received independent legal advice on it (it is highly likely your employer will pay for your legal fees, or at the very least make a contribution to them). The solicitor will then attach a certificate confirming the advice that has been given.
This advice provided usually takes the form of the solicitor checking the terms of the Settlement Agreement and that you understand the implications of what it contains. Your solicitor may also be able to negotiate on your behalf to try and increase the amount payable under the agreement.
If you are provided with a Settlement Agreement by your employer (perhaps following a grievance, performance management issue or long term sickness etc.) then you should ask for a reasonable amount of time to consider your options (the ACAS Code of Practice suggests a minimum of 10 working days).