Settlement agreements

Understanding settlement agreements

A settlement agreement is a formal agreement between an employer and an employee to settle any potential claims that the employee has against the employer, usually in exchange for a financial severance package.

There are only two ways to settle employment claims without the input of a tribunal, by ACAS conciliation or by settlement agreement.

This is intended to protect claimants from signing their rights away without taking legal advice first.

Unsurprisingly, taking legal advice is one of the requirements of a binding settlement agreement.

Whether your employer is required to offer a settlement agreement is a question that comes up quite often and the short answer is no.

Settlement agreements are not obligatory and neither party can be forced to offer or accept a settlement agreement.

However, settlement agreements can often be beneficial for both parties involved and either party can suggest entering into one.

The main benefits of accepting a settlement agreement will depend on exactly what is negotiated between the two parties. However, some common benefits we see are:

Employee Benefits

• A negotiated financial package
• An agreed reference
• An agreed leaving statement
• Avoiding the stress and cost of pursuing a claim

Employer Benefits

• Certainty of the cost involved in dismissing an employee
• Avoiding future claims that the agreement has settled, and the costs associated with such claims
• Avoiding internal appeal and grievance procedures
• Confidentiality over the dispute that led to the agreement and terms of the agreement

Settlements are labelled ‘without prejudice’.

The without prejudice label refers to the ability for either party to rely on the terms or existence of the settlement agreement as evidence in the tribunal.

In most cases, without prejudice correspondence and agreements cannot be used as evidence in a tribunal claim.

This allows the parties to attempt to settle claims without fear of the offer being used against them if they don’t come to an agreement.

It is common for your employer to contribute towards the legal fees for the advice you need to accept a settlement agreement.

Usually, your employer will pay for the advice you need to accept the agreement, but not for advice on whether the offer constitutes a “good deal” for you to accept.