In this legal blog, we look at settlement agreements as a means of dispute resolution.
What is a settlement agreement?
A settlement agreement, once executed, is a legally binding contract between an employer and employee that sets out the terms on which the employer and employee agree to settle the dispute between them. Although most commonly used to agree the basis upon which an employee’s employment will end, settlement agreements can also be used to settle a discrimination complaints and other employment disputes, for example wages claims.
For a settlement agreement to be legally enforceable, the employee must receive independent legal advice from a solicitor, or other approved person, on the terms and effect of the agreement. For this reason, most employers will usually pay for the legal costs of the employee receiving advice on the terms and effect of the agreement.
What are the common terms in settlement agreements?
As well as various other clauses, settlement agreements usually contain the following pertinent clauses:
• the terms upon which the employee agrees to waive his or her right to bring employment tribunal claims against the employer – usually this is by way of a severance payment;
• the date by which any severance payment will be paid;
• a clause setting out any outstanding wages due, including holiday pay;
• a mutual non-derogatory clause, where both employer and employee agree not to make critical comments about each other;
• a clause waiving the employee’s right to bring a personal injury claim (save for claims unknown at the time);
• a confidentiality clause; and
• an agreed reference;
Additionally, for a settlement agreement to be valid it:
• must be in writing;
• must relate to a particular complaint or proceedings;
• must be voluntarily entered into; and
• the employee must have received independent legal advice on the terms and effect of the agreement from a relevant independent advice who has professional indemnity insurance covering the risk of a claim by the employee in respect of loss arising from that advice;
Can the terms in a settlement agreement be negotiated?
It is normal to negotiate amendments to the wording in the initial draft settlement agreement presented to employees. The willingness for employers to move on the severance payment on offer depends on the initial offer relative to the merits of the employee’s complaints and the value of any potential claim. Where there is a valid legal argument to justify an increase on the amount on offer, employers will usually consider the arguments in deciding whether or not to increase the offer.
What are the benefits of a settlement agreement for dispute resolution between employer and employee?
For an employee, employment tribunal litigation involves substantial legal costs, time, stress, work and litigation risk in pursuing a matter to a tribunal. A claim lodged in an employment tribunal often takes several months to conclude. The settlement of a dispute through a settlement agreement therefore means the employee can avoid this. However, in return for the negotiated settlement, the employee must be prepared to accept a sum lower than that which could be expected in a successful employment tribunal claim.
For an employer, the settlement of a claim saves the legal costs of defending an employment tribunal complaint, management time and can be a means to mitigate reputational risk.
How can Remedy Solicitors help?
As specialist employment law solicitors in London, we can advise and negotiate on your behalf on the terms of your settlement agreement. The principal at the firm, Ashok Kanani, with over ten years’ experience in the field of employment law, has the expertise to advise you on merits of your potential claim and its value. We have fixed fees for the advice on the terms and effect of the agreement, and fixed fees covering a range of other legal services. For more information on our services visit our homepage.