What Is A Settlement Agreement?
A settlement agreement is a formal contract between an employer and an employee, commonly used when an employee is leaving their position. This agreement typically includes a provision where the employee agrees not to bring certain claims to an employment tribunal or court in exchange for agreed terms regarding their departure.
Common Uses of Settlement Agreements
- To facilitate a smooth exit from employment with agreed terms
- To resolve ongoing disputes, such as wage disagreements
- Frequently used in redundancy and TUPE scenarios
Legal Requirements for Validity
For a settlement agreement to be legally binding, the following conditions must be met:
- It must be documented in writing.
- It should address a specific complaint or legal proceeding.
- The employee must sign the agreement.
- Independent legal advice must be provided by a qualified lawyer or certified trade union representative.
- The agreement must confirm that legal statutory conditions have been fulfilled.
Negotiation Process
Settlement agreements are voluntary, and both parties must mutually agree to the terms. Discussions typically take place on a “without prejudice” basis, ensuring the conversation remains confidential in future legal matters.
Key Terms in Settlement Agreements
Commonly negotiated elements include:
- References to be provided
- Public or internal announcements
- Support with finding alternative employment
- Tax implications
- Negotiation of financial compensation, often termed an "ex gratia" payment
Legal Time Limits
If an employee does not sign the agreement, they must adhere to strict deadlines when filing legal claims:
- For most claims, within three months minus one day from the end of employment.
- For discrimination claims, within three months minus one day from the date of the alleged discriminatory act.
Our experienced employment solicitors in Leeds can offer tailored advice on settlement agreements and legal options available to both employers and employees.
