5 things you should know about Settlement Agreements

At Grainger Appleyard we are often asked to advise employers and employees on potential settlement agreements. 

Formerly known as ‘compromise agreements’, they are documents which set out the terms and conditions agreed by an employer and employee when they agree to end an employment relationship or settle a potential employment tribunal claim or other court proceedings.

Whether you are an employer or employee considering a settlement agreement, here are the top 5 things to be aware of:

1. A settlement agreement is not valid unless an employee has received legal advice on it

Whilst settlement agreements are voluntary and the parties do not have to enter into them, this requirement acts as a safeguard to ensure that employees are not unfairly taken advantage of. The role of the legal advisor is to advise the employee on the terms and effect of the agreement and how it will affect the ability to bring any future claims against the employer. Usually the employer agrees to pay a contribution towards the legal costs of the employee getting that advice.

2. It’s not just about the money

For most employees, the biggest worry is the amount of money being offered in a settlement agreement. However settlement agreements often contain agreements about other things such as providing a reference or whether any restrictions apply after the employment ends e.g. there may be restrictions which prevent the employee from working for a competitor. It is important to check all of these other clauses very carefully.

3. Negotiations about settlement agreements are usually confidential

Settlement Agreements are usually headed ‘Without Prejudice’. This means that the employer and employee can negotiate the terms of the settlement agreement freely in a genuine attempt to settle. If an agreement is not reached, then those discussions and negotiations cannot be used in evidence against either party. 

4. Future claims can be settled in a settlement agreement

Settlement agreements usually include a clause that an employee gives up their right to pursue legal proceedings. It is therefore possible to settle future claims, even if the employee isn’t aware of them. The wording of the settlement agreement must be very clear about which types of claims are waived.

5. Settlement agreements are enforceable

A valid settlement agreement is legally binding on both parties. This means that if either party breaches the agreement then it can be enforced in either the civil courts or the employment tribunal, depending on whether the agreement was entered into before or after the employment ended.

If you require legal advice about a settlement agreement please contact us on 01302 327257.