It is not uncommon for dispute to come about within the workplace. In order to combat what can be lengthy and costly disputes, employers and employees can enter into a contract know as a ‘settlement agreement’. Also known as compromise agreements, settlement agreements offer a way to resolve employment disputes amicably and provide certainty for both parties. This blog aims to provide an overview of settlement agreements in the UK, outlining their purpose, key components, and the benefits they offer.
What is a settlement agreement;
A settlement agreement is a legally binding contract between an employer and an employee that sets out the terms that they agree to resolve an employment dispute. Notably, this includes an agreement by the employee to waive their rights to bring a claims against the employer. In return, this usually includes a financial payment to the employee or other mutually agreed terms.
Settlement agreements are a common agreement on the basis that they offer both legal certainty and finality to both parties. It also removed the risk and time associated with an expensive Employment Tribunal claim. They can also help maintain relations between employers and employees by resolving disputes amicably.
Enforceability of Settlement Agreements: Settlement agreements are legally binding contracts, and once both parties have signed the agreement, they are typically enforceable in court. However, it is essential to ensure that the agreement complies with relevant legal requirements to ensure its enforceability.
Contents of a Settlement Agreement:
Settlement agreements set out information such as an employee’s Termination Date, details of financial settlement, notice pay and holiday entitlement. It will also deal with matters relating to confidentiality non-disclosure.
A key component of the settlement agreement will set out the waiver of claims by the employee i.e. that the employee agrees not to pursue a claim against the employer. The agreement is likely conditional upon this point.
Confidentiality includes parties disclosing the terms or details of the agreement and matters relating to their employment generally. It is also common practice for a clause to exist regarding the parties not making derogatory comments about the other.
In order to be legally binding and compliant with legislation, an employee must obtain independent legal advice on the settlement agreement. This is to ensure that you fully understand the terms set out in in the agreement.
We would also encourage employers to seek advice with the drafting of such an agreement to ensure they are fully protected and all matters covered.
We are able to assist both employers and employees with settlement agreements. Please call us today and we would be happy to support you through the process.
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