Settlement agreements (previously known as compromise agreements) can be a very useful tool for employers when there is a requirement to end an employment relationship and the employer requires the “safety” of knowing that the employee cannot later pursue a claim in the employment tribunal and is prepared to agree a settlement sum and usually a reference with the employee. Settlement Agreements are legally binding contracts.
Settlement agreements are entirely voluntary and parties do not have to agree to them or enter into discussion about them. In our experience, this is unusual! There can be a process of negotiation during which both sides make proposals and counter proposals until an agreement is reached or both parties decide no agreement can be reached.
For the employer, there is very little downside to using the relevant employment legislation as set out in section 111A of the employment rights Act (ERA) 1996 to try and reach a settlement because settlement discussions cannot usually be used in any subsequent unfair dismissal claim.
For the settlement agreement to be legally binding, certain conditions must be met, including that the agreement must be in writing and must clearly set out the terms. Further, the employee must have received advice from an independent adviser such as a solicitor or trained member of a trade union and the adviser must hold professional indemnity insurance. The adviser will sign a certificate contained within the agreement.
Frequently Asked Questions
How do I make sure that I cover all of the legal requirements for a Settlement Agreement to be binding?
The employer should hold a meeting with the employee and then swiftly follow this up with a letter laying out all of the terms and the timescale (usually ten days) for the employee to consider their position. James House HR are happy to advise you in respect of individual employees, draft the appropriate letters and attend meetings as required.
Do I have to pay for the employee’s solicitors?
It is not a legal requirement, but in the vast majority of cases the employer pays the legal costs of the employee to a “cap” specified in the initial letter to the employee. This sum is usually somewhere between £500 and £900.00, depending on the complexity of the agreement.