What is a Settlement Agreement?
29 Sep 2021
What is the purpose of a settlement agreement?
A settlement agreement is a legally binding agreement where an employee gives up the right to bring almost all employment-related claims against their employer, in return for a settlement payment. There may also be other terms in the agreement, such as the employer agreeing to provide a reference, or the employee agreeing not to work for a competitor for a certain period.
Settlement agreements are usually signed around or after the end of your employment. However, you can sign a settlement agreement during your employment to settle any claims you may have at that point whilst your employment continues afterwards.
Do I have to sign a settlement agreement?
No, it’s completely up to you whether or not you sign one. You should think carefully before you decide whether or not to sign an agreement.
What should I consider before signing a settlement agreement?
You should work out whether you are being offered at least what you would receive if you didn’t sign the agreement. For example, say you’ve been offered a settlement agreement as an alternative to a formal redundancy consultation that is planned to last four weeks. You would expect any settlement agreement to give you your notice pay, any redundancy pay you’d receive plus the four weeks’ pay that you would receive during the consultation process. Ideally, you would receive something in addition to your contractual and statutory entitlements as a payment for entering into the settlement agreement and giving up your right to make a claim.
You should also take into account any non-monetary benefits you would receive under the agreement. It’s common to include an agreed reference within settlement agreements and this may be a real benefit to you in looking for your next role. Bear in mind that even if you took your employer to a Tribunal and won, a Tribunal still cannot order your employer to provide you with a good reference.
You should also consider what the downsides of not signing the agreement would be. For example, if you’ve been offered an agreement during your employment and you don’t sign it, your employer may start disciplinary or performance management action against you. That could result in a dismissal which could be difficult to challenge. If you are offered an agreement after your employment has already ended you may feel that you have a good claim against your employer – but Employment Tribunal claims can be long, stressful processes and there would be no guarantee of success. Signing an agreement at an early stage may be a better option.
Can I negotiate what my employer has offered me?
Yes, until the settlement agreement is signed you can negotiate on any of the terms. That may include asking for a higher payment, a better reference, or you may want to amend some of the other terms in the agreement regarding, say, confidentiality.
When would I need to sign a settlement agreement?
Legally a settlement agreement can be signed at any time and can be during your employment, or after it has ended. However, in practice your employer will normally give you a deadline by which to sign the agreement before the offer of settlement is withdrawn. If you need more time to consider the agreement or to take advice you can ask your employer to extend the deadline, although they are not required to do this.
Can I refer to the offer of a settlement agreement in Court?
Generally, no. Settlement discussions are normally covered by what is called “without prejudice” privilege, which prevents the content of the discussions being referred to in a Court or Tribunal. There are only some narrow circumstances where the privilege does not apply – you should take advice if you want to refer to anything that is without prejudice in Court.
Can I ask for a settlement agreement?
Yes, there is nothing to stop you from approaching your employer and asking for a settlement agreement. You should take advice if you want to take this approach to ensure any such request is covered by the without prejudice rule.
What does a settlement agreement need to include?
To validly settle employment claims, it’s a legal requirement that the agreement:
- Is in writing;
- Specifies which claims are settled;
- Records that you have taken legal advice;
- Identifies the lawyer you took advice from;
- Confirms that your lawyer is insured; and
- States that the statutory requirements relating to settlement agreements are met.
Why do I need to see a lawyer before signing a settlement agreement?
It’s a legal requirement that you take legal advice on a settlement agreement before it is binding. This requirement is to protect employees from signing away their employment rights without fully understanding what they’re doing.
My employer has given me a settlement agreement without the need to see a lawyer – does that mean it’s not legal?
That depends on exactly what the agreement says. For specific employment rights like the right to claim unfair dismissal, you need to take advice from a lawyer before you can sign away that right. Therefore if your employer asked you to sign a document saying you won’t bring a claim against them, but the agreement doesn’t ask you to see a lawyer, that agreement can’t stop you from bringing an unfair dismissal claim. Your employer may just be giving you a non-binding agreement as a deterrent to you bringing a claim, and/or because they’re concerned about you taking legal advice.
However, such an agreement could prevent you from bringing other claims against your employer, such as a claim for breach of contract as this is not a specific employment claim. If you’re asked to sign any settlement agreement by your employer, you should take legal advice.
Do I need to pay for legal advice on a settlement agreement?
Generally your employer will pay for most or all of the cost of you taking legal advice on a settlement agreement as they will want the assurance that the agreement is legally binding. However this is not a requirement for a settlement agreement and occasionally you may need to contribute some or all of the cost of taking advice if your employer will not do this.
What if I sign the agreement but later want to bring a claim against my employer?
If you have signed a binding agreement it would only be in exceptional circumstances, for example involving misrepresentation or fraud, that you would be able to bring a claim against your employer. It may also be possible to bring a claim in relation to something which you were unaware of when you signed the agreement. You should take advice if you have signed an agreement but still want to bring a claim.
How Richard Nelson LLP can help you negotiate a settlement agreement
Richard Nelson LLP’s team of experienced settlement agreement solicitors are here to help you get the best deal from a settlement agreement to ensure leave your job on fair terms.
If you need further guidance on settlement agreements, please don’t hesitate to get in contact with us. Our lawyers can help you through the entire settlement agreement process, from assessing your initial offer, to negotiating more favourable terms and advising on taking the matter to Court should it become necessary.