Settlement Agreements 

What is a settlement agreement?

A settlement agreement is a legally binding agreement between an employee and an employer.  

This settlement normally involves severance payment in return for the employee’s agreement that they will not follow any claims in court or an employment tribunal. If the employee already has a claim, a settlement agreement will normally mean that the employee will withdraw their claim. 

Settlement agreements are primarily used in two situations:

1) To end a contract of employment cleanly.

2) To settle an existing dispute between employee and employer.

what needs to be in my settlement agreement?

Each settlement agreement is different and the exact information in each one will differ from another. However, usually, there are elements that will be in all settlement agreements. These are:

1. Any outstanding payments or balances, such as salary, bonuses, commission and holiday pay.

2. A termination payment that will be paid to the employee for agreeing to terminate their contract.

3. A confidentiality clause.

4. A non-derogatory clause which will prevent both parties from saying unpleasant things about each other.

5. A contribution by the employer towards any legal costs.

How does the settlement agreement process work?

Confidentiality

Confidentiality clauses are an extremely important part of settlement agreements for employers. However, the clause will need to be relatively relaxed so the employee is able to discuss the agreement with a family member and to enable employees to discuss the circumstances of their departure with future employers. It is important to note that this confidentiality clause may include a mutual clause to prevent the employee and employer from making derogatory comments about one another

How can a lawyer help with your settlement agreement?

The function of your settlement agreement is to make the termination of your employment as smooth as possible for you. You might find that your employer will offer you a settlement agreement right before the end of your employment, so to avoid any legal claims against them.

While you don’t have to have a lawyer to advise you on your settlement agreement, you might find that their advice can be really helpful, especially if the alternative to the agreement is a discrimination or unfair dismissal case.

Firstly, if you feel like you are being pressured into accepting a settlement agreement. For example, if you have a case of unfair dismissal, and your employer is pushing you towards a settlement agreement to avoid further action against them. In this situation, a lawyer will advise you on whether it is best to sign your agreement or not. Together, you might be able to find an alternative solution that suits you better.

You might also need a lawyer if your employer breaks the terms of your settlement agreement, for example, they may have agreed to pay you a sum of money that you never receive. Your lawyer will then look at all the evidence and will work hard to get your money to you.