In July 2013, UK legislation around settlement agreements changed making it easier for employers to make settlement offers. As a result, we have seen a steady increase in the number of people contacting us about settlement agreements, particularly in the last year.
Formerly known as compromise agreements, a settlement agreement is a legally binding agreement that sets out the full terms of a settlement between an employer and an employee.
A settlement agreement is usually drafted when an employee is being made redundant, either on a voluntary or compulsory basis. However, they can also be offered to employees if an employer thinks he or she is performing poorly in their job or finds that they are guilty of misconduct. In addition, settlement agreements tend to be used when employers are offering to pay their employee more than the statutory minimum entitlement.
Each settlement agreement varies but typically, the agreement will contain:-
the claim (s) to be settled;
the payment the employee will receive and the relevant tax issues;
a confidentiality clause.
Legislation dictates that an employee must seek independent legal advice on the terms and effect of a settlement agreement. It is customary for the employer to pay for this, or at least make a significant contribution.
It is important to ensure you receive advice from an employment specialist. We can advise you on the terms of settlement offered by your employer, whether there are any hidden traps and whether you have any grounds for a claim against your employer – such as discrimination or unfair dismissal. We can examine both your contract of employment and your settlement agreement to ensure the latter reflects what has been agreed between you and your employer and to advise you on the legal effect of your settlement agreement.
If you have any questions about settlement agreements, please contact Julie Edmonds, Head of Employment, by email jedmonds@jpclaw.co.uk telephone 0207 644 7286 or contact her on LinkedIn.
