What is a Settlement Agreement?
Settlement agreements were previously known as compromise agreements. Employees may have claims against their employers. This can be during recruitment, whilst employed or on termination of employment. Employers will often make a payment to an employee in returning for the employee agreeing not to make claims against them. Settlement agreements are usually used to either terminate employment after a termination has taken place. The agreed terms are recorded into a written contract and signed by each party. This has the effect of preventing an employee from bringing claims against an employer as they have been settled by way of an agreement.
When is a settlement agreement offered?
Settlement agreements are most commonly offered typically at the end of employment. Often if employees work for larger companies, they will be offered enhanced terms if for example, there are redundancies to be made. There will often be a formula set out in a staff handbook which makes clear how redundancies will be dealt with. In order to be able to receive the enhanced sum, a settlement agreement will need to be entered into legally.
Settlement agreements are also commonly used when there are issues around employee performance or misconduct. Employers will often rather have an agreed outcome which results in an employee leaving the business rather than spending management time and costs on an issue which can take at the very least months to undertake in most cases. An employer may enter into a protected discussion with an employee whereby they can speak freely and make a genuine attempt to settle a case.
What are the benefits of a settlement agreement?
Settlement agreements have numerous benefits. As the agreement is documented, the terms of settlement will be set out clearly which gives certainty to employees and employees as to finances. Employees will also be able to negotiate benefits which a Tribunal could not order such as a job reference with agreed wording. An employer will not need to worry that future claims will be brought against them which gives certainty to the business when planning their future. A settlement agreement can save the costs of litigation and stress. In most cases, even if an employer or employee succeed in a claim, they will not recover their costs. A settlement agreement can also be structured in the most tax efficient way to ensure maximum benefit. Lastly, it allows the parties to have a clean break and move on without having to continually dealing with a stressful or upsetting situation.
How furlough may affect settlement agreements?
A settlement agreement can be offered whilst an employee is on furlough. Redundancy pay must be at the full wage rather than furlough rate. However, if an employees notice period is more than the statutory minimum, this rule will not apply. As furlough payments will be coming to an end in September 2021, there will be pressure on businesses to cut costs and re evaluate their business structures which may lead to redundancies and more settlement agreements.
Why you need a solicitor during a settlement agreement?
A Solicitor is required for a settlement agreement as it is a legal requirement to be advised by an independent advisor. You will be advised as to the claims you may have against an employer and your ability to pursue those claims if you enter into a settlement agreement. These claims can be either contractual right which arise from your contract of employment, statutory rights which are claims which can be pursued in an employment tribunal and common law rights such as a personal injury claim.
A Solicitor will have the knowledge to guide you through the process and ensure that all aspects of an agreement are considered. They will also be able to advise you as to what is not included in the agreement that should be, such as a job reference with agreed wording.