Over the next three weeks we will be publishing three blog posts on the topic of “Settlement Agreements”. Each blog will answer some of the frequently asked questions raised by employees. We will also set out some practical guidance on what to do if you are presented with a settlement agreement.
As a starting point, this first blog will outline what a settlement agreement is and why it can be of mutual benefit to an employer and employee.
What is a settlement agreement?
A settlement agreement is a legally binding agreement whereby a current or former employee agrees to waive or settle all possible claims against their employer. This is often in return for a payment which is usually made shortly after termination of employment.
The purpose of the agreement is to record the full settlement terms. It will include written details of any financial payments which are being made and a list of the claims that are being waived. The agreement will also set out other important details governing the arrangement. It is highly likely that the agreement will include a confidentiality clause. This means that you should not discuss the terms or existence of the agreement.
Why do employers use settlement agreements?
A settlement agreement can provide a clean break to both the employee and employer. It can offer a quick alternative to the time and cost associated with a redundancy procedure or formal disciplinary process. The benefit to the employer is that the employee is waiving all of their employment law claims and the terms of the settlement will be confidential.
What is the benefit to you?
Terms that are negotiated through settlement agreements can often represent a better financial outcome from that which the employee may achieve through issuing a case an employment tribunal. This is partially due to the uncertainty and ‘litigation risk’ of issuing a claim at a tribunal. However, it can also provide the employee with control over specific terms, such as a reference or an agreed announcement. These are terms that can be extremely valuable to an employee.
In addition, by entering into a settlement agreement, the employee can avoid the financial and emotional burden of proceeding to issue a claim at an employment tribunal.
How long will it take to agree the terms of the settlement agreement?
Generally speaking, settlement agreements can be concluded relatively quickly. If you are happy with the terms of the proposed agreement, your solicitor should be able to finalise the agreement within a few days. In some cases it can be concluded on the same day. Obviously, if there are further negotiations needed then this will mean that the process takes longer. The timeframe is usually dependant on how quickly your employer responds. Your solicitor will be able to keep you updated on this.
If you have a particularly short or specific deadline, your solicitor will do their best to accommodate this. It is helpful if you let them know the timescales at the start of your meeting so that they are fully aware.
Next week’s blog will outline the steps you will need to take if you are provided with a proposed settlement agreement.
Paris Smith has an eight-strong team of qualified employment solicitors. We advise employees on settlement agreements on a regular basis and we are equipped to guide you through this process. If you would like to speak with a member of the team, please do contact us and we would be happy to help.