Does your business wish to restructure or make redundancies? Wish to avoid wasted management time; protracted formal processes; the risk of employment claims and compensation, defence costs and adverse publicity?

Yes? A settlement (compromise) agreement may be the answer.

Settlement agreements used to be called compromise agreements and are used to contractually agree the exit of an employee or worker from employment with a business and the terms for this. Such terms are conditional upon the employee or worker ceasing to pursue any grievances (if relevant) and waiving all rights to bring any claims or rights of action against a business, its directors, officers and employees; therefore removing risk.

Once legally complete a settlement agreement is a legal contract between an employer and an employee or worker enforceable by both parties. Such agreements are usually confidential; therefore affording protection to a business.

What Does a Settlement Agreement Include?

A settlement agreement generally includes a termination date (the date an employee exits employment with a business), contractual and ex-gratia payments, payment terms, a reference and confidentiality. An employee is obliged to have independent legal advice when signing a settlement agreement which is why such agreements should be carefully drafted.

For any legal contract there has to be consideration (usually an ex-gratia payment); however it can be possible for a settlement agreement (where appropriate) to include nominal payment(s) and mainly non-pecuniary terms such as an agreed reference; announcement and confidentiality and post-termination restrictions.

When Can a Settlement Agreement be Used?

Settlement agreements can be used in a number of situations including but not limited to:

  • Redundancy;

  • Restructuring after lay-off;

  • Short-time working or furlough leave;

  • Variations of contracts of employment;

  • Employment disputes;

  • Director disputes;

  • When dealing with Employee Grievances;

  • Disciplinary matters for misconduct, poor performance;

  • Long term sick and ill-health retirements; and

  • Where post-termination restrictions are of particular importance.

It is not enough to understand the general content of a settlement agreement. It is imperative to understand how and where settlement agreements should be used and the precise timing and strategy to implement these. It is also important to ensure the content is drafted appropriately to protect your business and in the context of a particular situation.

Advice should be sought at an early stage by businesses so that a particular objective or HR & Employment situation can be assessed; a determination can be made about the best timing; and assistance can be provided with the strategy for introduction of the settlement agreement to an employee; how best to “sell” this to them; how to deal with any ensuing negotiations and to conclude matters quickly.

The Ultimate Goal?

To avoid protracted formal processes, remove risk, and simply get on with business.

If you require advice or assistance with restructures, redundancy or drafting, implementation, negotiating or concluding settlement agreements, please contact Farleys’ employment law solicitors on 0845 287 0939 or get in touch by email.