Settlement Agreements are a common feature of modern employment law and are often used when an employer and employee wish to bring an employment relationship to conclusion.
For employees, receiving a settlement agreement can sometimes feel daunting. However, these agreements are designed to provide certainty for both parties and can often offer benefits that would not otherwise be available.
What Is a Settlement Agreement?
A Settlement Agreement is a legally binding contract between an employer and an employee. An employee agrees not to pursue certain legal claims against the employer in exchange for compensation or other agreed terms.
Settlement Agreements can be used in a variety of situations including:
• Redundancy exercises
• Workplace disputes
• Performance or conduct concerns
• Senior management exits
• Business restructures
• Mutual agreements to end employment
The agreement will usually set out the financial package being offered, any notice arrangements, confidentiality obligations and the reference that may be provided to future employers.
Why Independent Legal Advice Is Required
For a Settlement Agreement to be legally valid, employees must receive independent legal advice before signing. If they don’t, the settlement agreement will not be legally binding.
This requirement exists to ensure that employees understand:
• The rights they may be giving up
• The financial terms being offered
• Any restrictions that may apply after employment ends
• The overall implications of entering into the agreement
What Should Employees Consider?
Before accepting a Settlement Agreement, employees should carefully review:
The Compensation Package
The financial offer should be considered in the context of the employee's circumstances, length of service and potential employment rights.
Restrictive Covenants
Some agreements contain new post-termination restrictions or refer to existing restrictions that may affect future employment opportunities.
Confidentiality Clauses
Many agreements include confidentiality provisions covering the circumstances of the departure and the terms of the settlement.
Employment References
It may be possible to agree the wording of a future employment reference as part of the negotiations.
Can Settlement Agreements Be Negotiated?
Many employees are unaware that Settlement Agreements can often be negotiated.
Depending on the circumstances, it may be possible to negotiate:
• Increased compensation
• Payment of bonuses or commission
• Extended benefits
• Agreed references
• Amendments to restrictive covenants
• Changes to confidentiality provisions
Each situation will depend upon its own facts and circumstances.
Benefits of Settlement Agreements
When handled properly, Settlement Agreements can provide advantages for both employers and employees.
Potential benefits include:
• Certainty and finality
• Avoidance of lengthy disputes
• Financial compensation
• Agreed exit terms
• Reduced stress and uncertainty
For many employees, a negotiated settlement can provide a practical and constructive way of moving forward.
Seeking Professional Advice
It is important that employees obtain independent legal advice before signing any settlement agreement and not from lawyers that their employer suggests, as this may lack independence.
Understanding negotiation exit packages your legal rights, the value of any potential claims and the terms being offered can help ensure that informed decisions are made and that the best possible outcome is achieved.
Anyone who has received a Settlement Agreement should seek advice from a qualified employment law solicitor before agreeing to its terms.