What is a Settlement Agreement (in Employment Law)?

What is an employment settlement agreement?

If your employer has just offered you a settlement agreement, you may be wondering what that means.

What is a settlement agreement? Why have you received one? How should you respond?

(For the avoidance of doubt, this article only relates to employment settlement agreements. The term is used in other areas of law, such as divorce settlements. You’ll need to speak to a different solicitor if you need advice on that.)

What is a settlement agreement?

A settlement agreement is a contract between you and your employer by which you sign away all your rights to bring any kind of claim. This is usually in exchange for a sum of money.

There are certain legal requirements that must be met – otherwise the agreement isn’t valid. These legal requirements are largely aimed at protecting you, the employee.

What are the legal requirements?

In order for a settlement agreement to be effective, the following conditions must be met:

  • The agreement must be in writing
  • It must specify which potential claims you’re giving up (eg unfair dismissal, discrimination, holiday pay)
  • You must receive legal advice on it from someone suitably qualified, usually a solicitor (but see below for other options)
  • Your adviser must be insured
  • Your adviser must be named in the agreement
  • The agreement must stated that the above conditions are satisfied

If any of the above conditions are not met, the agreement will be void. That may mean you can still bring a claim. But it may also mean you won’t receive your money.

Independent legal advice

As mentioned above, you must receive advice from a ‘relevant independent adviser’ on the effect of the settlement agreement. Otherwise, it’s just not valid.

But what is a relevant independent adviser? Who qualifies? And how do you find one?

In order to qualify, your adviser can be any of the following:

  • a qualified lawyer (usually a solicitor or a barrister); or
  • a trade union representative, who is authorised on behalf of the union;or
  • someone who works at at an advice centre, who is certified by that centre;or
  • a Fellow of the Institute of Legal Executives, provided that they are practising in a solicitors’ firm

Your adviser must not be employed by or acting for your employer. It’s fine for them to be part of a panel selected by the employer. They may (and usually are) paid by the employer. However, they must be independent of the employer and act in the best interests of the employee.

Sometimes a lawyer may advise a group of employees at a group presentation. This is acceptable, provided each employee also has a one-to-one consultation with the solicitor afterwards.

Usually the adviser will sign an adviser’s certificate to confirm that the advice has been given.

Although it’s not a legal requirement for your employer to pay your legal costs, they usually pay a contribution. In most cases, we limit our fee to the amount of that contribution, which means that there’s not charge to you.

Click here to find out more about how we charge for advice on settlement agreements.

What claims are you giving up?

Your settlement agreement probably includes a list of about 30 different types of employment claim. By signing the agreement you’re giving up your right to bring any of those claims.

Most of the claims probably won’t be relevant anyway. You may think it would be easier and quicker just to say you’re giving up all your claims without having to list them. However, the law doesn’t allow this. The agreement must specify each claim.

When you speak to your adviser, they will be able to advise you which claims you may be able to bring and what they are worth. Even if you don’t want to bring legal proceedings, you should know the value of any potential claims because it affects the amount you should accept in the settlement agreement. Your adviser will advise you on whether there’s any scope for negotiation.

The advantages of a settlement agreement

The potential advantages of reaching a settlement agreement are:

  • it can bring an early end to a dispute which could otherwise become drawn out, expensive and stressful
  • there’s no need for an external body, such as ACAS, to get involved
  • the settlement agreement can be enforced through the courts if either party breaches it

Provided the parties can reach a sensible compromise, a settlement agreement is usually a better option than pursuing the dispute in an employment tribunal. Click here to find out why.

Free Consultation About Your Settlement Agreement

If you have received a settlement agreement, you will need to make sure you receive legal advice on it.

We advise clients throughout the UK. Call us now for a free consultation.

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