A settlement agreement is a legally binding contract between an employer and an employee, designed to resolve disputes or end an employment relationship on agreed terms. Formerly known as a compromise agreement, it is commonly used when an employer wants to terminate employment or settle ongoing workplace disputes amicably.
How Does a Settlement Agreement Work?
The agreement sets out the terms both parties agree upon, including the end date of employment, any financial compensation, and other conditions such as confidentiality clauses. For it to be legally binding in England and Wales, certain conditions must be met under Section 203 of the Employment Rights Act 1996:
- The agreement must be in writing.
- It must relate to specific complaints or claims.
- The employee must receive independent legal advice on the agreement’s terms and effects before signing.
- The adviser must be qualified and insured.
- The agreement must confirm these legal requirements have been satisfied.
Why Are Settlement Agreements Used?
Employers often propose settlement agreements to avoid lengthy and costly employment tribunal claims. They provide a clean break for both parties, offering certainty and protecting reputations. Employees typically receive a financial settlement and sometimes a reference, in exchange for waiving rights to bring future claims related to the matters covered in the agreement.
Key Components of a Settlement Agreement
A typical settlement agreement includes:
- Termination details: Notice period, last working day, and any handover duties.
- Financial settlement: Compensation offered to the employee, often covering loss of earnings and legal fees.
- Waiver of claims: The employee agrees not to pursue further legal claims against the employer on specified issues.
- Confidentiality: Terms to keep the agreement and circumstances private.
- References: Agreed wording of any employment reference provided.
- Governing law: Confirmation that the agreement is governed by the laws of England and Wales.
The Importance of Legal Advice
It is a legal requirement that employees receive independent legal advice before signing a settlement agreement. This ensures they fully understand the implications, including the rights they are waiving and the financial and legal consequences. Pepperells Solicitors offers expert, independent advice to help employees and employers navigate this process confidently and securely.
Why Choose Pepperells Solicitors?
At Pepperells Solicitors, we specialise in employment law and have extensive experience advising on settlement agreements. Whether you are an employee seeking to understand your rights or an employer aiming to resolve disputes efficiently, our team provides clear, practical guidance tailored to your situation. We ensure your settlement agreement is fair, legally sound, and protects your interests.
If you are considering a settlement agreement or have been offered one, contact Pepperells Solicitors today for expert advice you can trust. Our knowledgeable team will help you understand your options and secure the best possible outcome.
This guide is for informational purposes and does not constitute legal advice. For personalised assistance, please consult Pepperells Solicitors directly.