A Settlement Agreement is a document that sets out the terms whereby an employee’s prospective claim against an employer is settled.
Employers commonly use them to bring an employee’s employment to a close by agreement. The employer will agree to pay the employee in return for his agreement to waive any claims against his employer. We will set out our top tips when considering a Settlement Agreement.
- Firstly, the parties will often reach the terms of the Agreement by way of discussion and negotiation. For obvious reasons, the employee’s main concern will usually be the amount of payment he will receive in return for waiving his rights to pursue a claim against his employer. If he is not content with the amount that the employer has offered him, the parties can negotiate this. It is often recommended that the employee negotiate this himself. The employee has better knowledge of his employment situation than his adviser, and should therefore be able to negotiate satisfactory payment.
- The employee should seek written confirmation of the date by which any payment under the Settlement Agreement shall be made. The absence of a specified date can often lead to disappointment; particularly when an employee has a mortgage or other liabilities to meet.
- The employee should seek legal advice in respect of the payment before entering into the agreement. The adviser will be able to confirm whether or not the amount the employer is offering is satisfactory. The employer will usually pay for the employee’s legal costs.
A representative will consider what the employee may receive had his employment been terminated in breach of his contract or unlawfully. Termination payment should adequately represent what the employee may receive if he or she were to pursue the claim to an Employment Tribunal and be successful. This is not an exact science. Compensation depends upon how long the employee will be out of work and take to find alternative employment.
- It is important to check the terms of your contract at the same time as entering into a Settlement Agreement. This is because the employee is likely to have continuing obligations to his employer. For example, there may be restrictive covenants preventing him from working at a competitor’s company; or a term preventing him from disclosing any company secrets.
- Before entering the agreement, the employee needs to carefully consider whether he or she has any prospective claims against the employer. Employees should seek legal advice in respect of this issue.
- Entering into a Settlement Agreement can avoid the time and stress of pursuing a claim to a Tribunal. It provides a swift way to bring a person’s employment to a close.
- Finally, the employee cannot make threats against the employer to perhaps reveal secrets as part of any negotiation strategy to reach an agreement.
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