Settlement agreements are legally binding contracts that are used in the work place normally when an employment situation comes to an end.
For example, if members of staff are accepting redundancy, a settlement agreement can outline how that works and what the obligations are on both sides. This might include the employee accepting redundancy not reapply for any job in the organisation over a specific period, agreeing to a confidentiality clause and that the employer will pay an agreed amount in compensation through a redundancy package.
A settlement arrangement can be beneficial to both parties. For the employee it ensures they have the certainty of being compensated for the loss of their job as well as the promise perhaps of a good reference for their next position. For the employer it can mean they avoid costly outcomes such as having to go through an employment tribunal or there being a dispute over the terms of dismissal.
A settlement agreement can be used for a variety of purposes. Redundancy is one but it can also be useful if there is an ongoing grievance. It can be used to provide a working framework for performance management at work and for underpinning cases of long term sickness or absence. It can also be used when there is a transfer of a business to new owners or when there is a particular grievance that cannot be settled by normal mediation.
The agreement needs to be put into writing and agreed by both parties after they have received independent legal counsel from a solicitor, someone who will certify that the right advice has been given. At first sight for an employee, a settlement agreement can seem daunting but they are actually reasonably simple. Agreements will vary a little from person to person but will include certain basic aspects such as:
- The nature of the claim to be settled.
- How much you are going to be paid and any tax benefits.
- The addition of a confidentiality clause.
- An agreement by the employer to provide a suitable reference.
An agreement is usually preceded by what is called a pre-termination negotiation where the employer discusses with the employee the terms of dismissal. This is a confidential conversation and, under normal circumstances, cannot be used as evidence in any subsequent tribunal or legal proceedings (there are exceptions to this rule which a solicitor will be able to discuss with you).
Settlement agreements are not just useful for large corporations, where they have a whole host of legal teams on standby to arrange such things. Smaller companies can benefit from having them and they are not particularly difficult to set up. They can mean that the process of someone leaving your employ runs smoothly and without any comeback that can be costly and time consuming.
At Forster Dean Solicitors in St Helens, we can provide advice and guidance to both employers and employees. For business owners we can put together the right wording and make sure you don’t face any hitches along the way. For employees we can make sure we provide independent and accurate advice on any settlement arrangement that has been offered. Contact us today to find out more.
