What are settlement agreements

What are settlement agreements

Settlement agreements are used by employers as a method of settling any employment claims that an employee may have against them, including in relation to redundancy.

They are often used to agree the arrangements for ending someone’s employment. An employee may find that a negotiated exit, through a settlement agreement, would deliver a better outcome for them than the standard terms of their employment contract.

They are pragmatic and effective because they can provide certainty and a ‘clean break’ for both parties. The process itself can be concluded relatively quickly compared with a full redundancy consultation. The pandemic has seen the use of settlement agreements become more commonplace as employers have attempted to achieve an amicable end to the employment relationship.

The legal details

A Settlement Agreement (formerly known as a Compromise Agreement) is a legally binding agreement which ends an employee’s employment on terms agreed between the employer and the employee.

The employee’s employment contract will terminate on an agreed date, and the employer will usually pay a severance payment in return for the employee entering into a settlement agreement (and not pursuing any claims in a Tribunal or a Court).

The terms of settlement agreements state that the employee must take independent legal advice as part of this process.

The benefits of settlement agreements

Bringing an employer-employee relationship to an end can be a difficult process for both parties.  Settlement agreements aim to make that process easier and less painful.

Unlike a lot of legal work, where whether or not the individual decides to take legal advice is up to them, for settlement agreements independent legal advice for the employee is compulsory.

As such, it is also often common for the employer to pay a contribution towards the employee’s legal advice, as it is usually in their shared interests to bring the negotiation to a prompt and clear-cut conclusion.

We support individual employees going through this process at every level – from directors and senior executives to more junior staff at earlier stages in their career.

The key is in helping to negotiate effectively and firmly over terms with the aim of reaching a timely and amicable conclusion, and with complete confidentiality.

Taking high-quality advice from an experienced legal team can allow the employee to move on with their life and career with confidence and a clean-break.

If you or your business would like some advice around settlement agreements, please get in touch.

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Zee Hussain

Director, Corporate Law

Zee is an experienced and trusted solicitor providing commercially focused advice to businesses, directors and senior executives, throughout the UK, on all aspects of employment law.

Learn more about Zee Hussain