We often get asked about settlement agreements; what is involved and why businesses should use them?
Here are some frequently asked questions and answers surrounding the topic:
What is a Settlement Agreement?
A Settlement Agreement (or Compromise Agreement as they were previously known) is a legally binding arrangement between two parties; the employer and an employee. The agreement sets out the terms and conditions that have been agreed by the employer and an employee to end an employment relationship or resolve a workplace issue. By signing the settlement agreement the employee agrees to waive his or her right to bring claims covered by the agreement to an employment tribunal or court.
When might a Settlement Agreement be used?
There could be a wide range of scenarios for which a settlement agreement can be used. One of the more common scenarios is to end an employment relationship which is no longer functioning in a mutually beneficial way for both parties involved. They can also be used to resolve workplace disputes or other work related issues, without the need to terminate the employment relationship.
Why use a Settlement Agreement?
One of the main benefits of using a Settlement Agreement is that through a process of negotiation it allows an employer and employee to end a workplace relationship or resolve a dispute in a legally binding, professional manner without the need for a costly tribunal.
Ensuring a Settlement Agreement is Valid
There are a number of legal formalities that must be complied with to ensure a Settlement Agreement is valid:
The agreement must be in writing. The agreement must relate to a particular complaint or proceedings. The employee must have received advice from a relevant independent adviser, such as a lawyer or a certified and authorised member of a trade union.
The independent adviser must have a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from the advice. The agreement must identify the adviser. The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.
There are a number of Settlement Agreement templates available online, however it is advisable for any employer considering entering into a Settlement Agreement to seek legal advice to ensure the agreement is valid and that they follow a fair process. Failure to do so may be grounds for a claim of unfair dismissal.