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What Is A Settlement Agreement?

08 July 2020 Category: News

A Settlement Agreement is an agreement between an employer and employee (or former employee) which is used to bring an employment contract or employment relationship to an end in a mutually agreed way.

It is not always necessary to use a Settlement Agreement when a Contract of Employment or employment relationship is terminated but a Settlement Agreement does usually provide a quick and dignified end to an employment relationship and can avoid time, cost and stress for all parties

When terms are agreed, a formal written Settlement Agreement will be produced by the employer.  For the Settlement Agreement to competently waive an individual’s right to bring legal proceedings, certain legal conditions must be met.  The employee must receive independent advice from a relevant advisor e.g. a Solicitor.  There may be a cost involved in obtaining such advice and employers should offer to pay any such fee or a contribution towards it to ensure that the employee gets the necessary advice.  It should be remembered that Settlement Agreements are legally binding and employers may also wish to seek legal advice when preparing them.

Settlement Agreements often contain clauses relating to confidentiality requiring the parties to keep the Agreement itself confidential and not disclose its details to any third parties (usually with limited exceptions such as professional advisors and close family members). 

If an offer of a Settlement Agreement is rejected and the employment relationship continues Employers could choose to follow up with alternative action to bring the employment relationship to an end.  However, Employers must always follow a fair process before an employee is dismissed.  Failure to do so will leave them vulnerable to potentially losing any subsequent unfair dismissal claim that the former employee may make.

If any provision of a Settlement Agreement is not implemented, e.g. the employer fails to pay the financial compensation to the former employee then the remedy is usually a court action based on breach of contract and damages. 

The legal information provided in this article is for guidance only and should not be regarded as an authoritative circumstances which apply.  It is always wise to seek early legal advice regarding any employment law matter from a relevant advisor such as an employment solicitor.

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