A settlement agreement is a legally binding agreement that establishes that an employee cannot sue an employer following the conclusion of their employment. Typically, such an agreement will be reached after the employee has received a sum of money on the agreement that they will not subsequently claim against the employer. These types of agreement are sometimes referred to as severance or redundancy agreements, and in the past may have been referred to as compromise agreements.
A settlement agreement will often be used at the conclusion of negotiations following an employment dispute. Another frequent use is when an employee has been offered an enhanced redundancy package, i.e. a package that goes beyond their standard redundancy package. Once a settlement agreement has been signed, the employee will not be able to claim against the employer before an employment tribunal. In some cases, a settlement agreement may detail other types of claim that the employee is also prevented from making.
The first requirement for a settlement agreement to be legally binding is that the employee must receive independent legal advice. The solicitor representing the employee should make them fully aware of any potential claims so that the employee is fully informed as to the legal issues at stake and the value of any potential claims they may have. It is advisable for employers to also seek legal advice from an employment law solicitor at the earliest stage as doing so can help you protect your business goals during negotiations, and ensure that a fair agreement is reached. In addition to this, a legally binding settlement agreement requires that:
• The agreement is in writing
• It is signed by the employee
• It relates to at least one specific proceeding or compliant
• The employee’s legal advisor is identified and insured
• The agreement states that the requirements regulating a settlement have been satisfied
For employers, reaching a settlement agreement offers certainty that the claim has been settled and that the employee will not seek further compensation in the future. Employees who reach a settlement agreement will benefit from receiving a guaranteed sum by way of compensation for any harm caused during their period of employment.