What are settlement agreements?

Many people have heard of compromise agreements, but what about settlement agreements? Settlement agreements replaced compromise agreements in July 2013 and enable an employer to end an employee’s contract of employment without facing the risk of certain types of claims. In essence, a settlement agreement is a legally binding contract that waives an individual’s right to make any claim covered by the agreement to an employment tribunal or court.

The new rules relating to settlement agreements enable businesses to hold discussions with employees about terminating their employment contract. These conversations, known as ‘protected conversations’, remain confidential and cannot be referred to in any later unfair dismissal claim. They are intended to encourage frank and honest exchanges between employer and employee, and usually cover the terms to be included in any settlement agreement; typically compensation, references and confidentiality.

The rules around protected conversations do not cover certain issues such as discrimination, or whistleblowing – and conversations that involve these topics may be referred to in any court proceedings that follow.

Do I have to enter a settlement agreement?

No. However, before turning down a settlement agreement, you should first consider the potential consequences. In a redundancy situation, if you are later selected for compulsory redundancy, you may find that you are entitled to less than what was offered in the settlement agreement.

If the settlement agreement has come about as a result of a dispute or alleged misconduct, you may have to undergo a disciplinary procedure resulting in your dismissal, potentially without any pay.

Is there anything else I need to know?

There are certain legal requirements for a settlement agreement to be binding. Any agreement must be in writing and must relate to a particular complaint or proceedings (e.g. a redundancy situation or allegation of misconduct). You must have received advice on the agreement from a lawyer or certified and authorised member of a trade union.

Your advisor is required to have an up to date contract of insurance or professional indemnity that covers the risk of any future claim by you in respect of any loss caused by the advice they provided. Further, the agreement must identify the adviser and confirm that various requirements laid down by the law have been met.

A settlement agreement must be voluntary – i.e. you must not have been forced to enter into it.  It’s also worthwhile noting that the terms of a settlement agreement are often open to negotiation. Of course, much will depend on the circumstances and the reasoning behind the proposed agreement.

What should I do if I’m offered a settlement agreement?

If your employer offers you a settlement agreement following a protected conversation, your first step should be to speak to an employment solicitor. It is usual for your employer to meet your legal costs, and may put forward the name of a solicitor for you to consult. However, it’s entirely your choice who you instruct. Your solicitor of choice should be an expert in settlement agreements with suitable past experience.

Your solicitor will ask you about the circumstances leading to the offer, and will advise you on whether you may have grounds to bring a claim against your employer. They should also explain whether or not the deal you’ve been offered is suitable, and if you should try to renegotiate the pay-out and other terms offered.

The team here at Farleys has many years’ experience in employment matters, and has been instructed on many settlement agreements since their introduction last year. Our team can provide advice on all aspects of settlement agreements, including payout levels and restrictive clauses; as well as negotiating directly with your employer if necessary.

For an initial conversation about a settlement agreement, please do not hesitate to contact us today.

By Victoria Mitchell, Lancashire Employment Lawyer