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What is a Settlement Agreement?
Settlement Agreements are legally binding contracts in which an employee waives their right to bring future claims against an employer in exchange for compensation. You might also see them called compromise agreements, golden goodbyes and termination agreements; among others.
To be legally binding, any agreement must meet a number of criteria. In particular:
- they must be in writing; and
- they must relate to a particular complaint or set of proceedings;
The employee concerned must have taken advice from a relevant independent adviser. The adviser must have either a current contract of insurance or professional indemnity insurance.
Further, the settlement agreement must identify the name of the adviser and must also confirm the statutory conditions which regulate settlement agreements have been met.
When would a settlement agreement be used?
Commonly used to end an employer / employee relationship on agreed terms, a settlement agreement is often offered to an employee just prior to the termination of employment. Settlement agreements are not exclusive to the end of the employment relationship, however. They can also be used to resolve disputes between employee and employer on mutual terms.
What is in a settlement agreement?
A typical settlement agreement will include the outcomes for both parties. You would expect to see:
- the amount to be paid to the employee; and
- details of the legal claims to which the right to bring forward has been waived by the employee in exchange for a compensatory sum.
The agreement may also feature any confidentiality clauses or non-disclosure clauses.
You will also find details of the specified time by which the sum is to be paid to the employee. Depending on the circumstances surrounding the agreement, it’s possible to find things such as written apologies, references and reasons for termination feature. Again though, these will all be written and mutually agreed between parties.
I have been offered an Agreement. Do I have to accept?
No, there’s nothing to force you to accept a settlement agreement. It may be possible however, that the employer would be able to dismiss you fairly and, in such circumstances, the offer of a settlement agreement may be preferable to dismissal. Not least, it is likely to contain a reference which will be helpful for future employment prospects.
Should I seek advice prior to accepting an offer?
Yes. The best thing to do is to always seek legal advice.
Ultimately though the choice is yours and you are under no obligation to accept an agreement offer.
How long do I have to decide whether to accept a settlement agreement?
It can vary however ACAS (Advisory, Conciliation and Arbitration Service) suggests a minimum of 10 days.
What is the cost of legal fees and who will pay?
As one of the aspects to make the agreement legally binding is to gain independent advice, an employer will often look to assist with your legal fees. This is usually a contribution of between £250-£500. If the matter is more complex and complicated however, your fees may be higher. In such circumstances it may be best to pay the extra to allow you to get the best deal. We would stress again, that this is entirely your choice.