As an employer or an employee, you will want to ensure that you are in an optimal position when negotiating and finalising a settlement agreement relating to termination of employment. 

Typically, a settlement agreement will be drafted by an employer to be reviewed by an employee where employment has already been terminated or will be terminated imminently. 

In this article, the Gordons Partnership employment law team explores statutory requirements associated with settlement agreements and what both parties should consider before finalising the agreement. 

What statutory conditions must be satisfied?

When a settlement agreement is implemented, various statutory conditions must be considered and adhered to, including: 

  • The settlement must be in writing. 
  • The settlement must relate to a particular complaint or proceeding (some claims cannot be compromised in a settlement agreement). 
  • The employee must have obtained legal advice from an independent adviser to ensure that they fully understand the terms and repercussions of the agreement and how it will affect their rights before an employment tribunal. The adviser must be disclosed in the settlement agreement. 
  • The involved legal adviser must have a current contract of insurance or professional indemnity insurance, which covers the risk of a claim against them by the employee relating to the advice they provide. 
  • The settlement agreement must disclose that the statutory conditions which regulate this agreement type have been satisfied. 

Why are settlement agreements required?

Typically, a settlement agreement involves an employer paying an employee a termination payment in exchange for the employee agreeing to waive specific stipulated claims that may have arisen against the employer under statute, the employment contract, or common law. Once the settlement agreement has been signed, the employee can no longer bring tribunal proceedings against the employer and is required to withdraw any proceedings already brought. 

The employee and employer will negotiate the value of the termination payment and any other provisions they want to include in the agreement as part of the negotiation process. 

What might be included in a settlement agreement?

Although there are similarities between many settlement agreements, it is unlikely that the two will ever be the same. Various considerations should be made by both employers and employees when drafting and negotiating a settlement agreement. Our employment lawyers have drafted a non-exhaustive list of aspects to consider below: 

  • The specific claims the employee has or might have against the employer. 
  • Whether the employee will be required to work their contracted notice period or whether they will be paid in lieu of notice. 
  • If they are required to work the notice period, what duties will the employee be responsible for and whether they will be placed on garden leave for any of the notice period. 
  • What entitlement the employee has to be paid for: salary and benefits up to the termination date including any accrued but untaken holiday, commission or bonuses; any applicable redundancy pay; any compensation for loss of benefits; any compensation for loss of employment; reimbursement of any expenses.
  • If any pension entitlements or share/investment entitlements must be considered. 
  • If the employee will pay an agreed contribution towards the legal fees required to obtain the independent legal advice.
  • If the employer will contribute towards the employee receiving outplacement counselling. 
  • If there is any company or employee property that must be returned. 
  • If any loans must be repaid and the arrangements for such. 
  • Whether there will be any confidentiality clauses regarding the employer’s information and the existence and terms of the agreement. 
  • Whether the employer will provide a reference. 
  • Whether the employee will be bound by any post-termination restrictions in their employment contract or any new ones. 
  • If a ‘no bad-mouthing’ provision will be included about what can or will be said publicly following the termination of employment. 
  • If there are any indemnity provisions relating to tax. 
  • If there are any suitable warranties to be included. 
  • Whether an ‘entire agreement’ clause will be included. 

Employment Lawyers Guildford and London

At Gordons Partnership, we work for both employers and employees. Our employment law solicitors have extensive experience advising on, negotiating and implementing settlement agreements, and they will help ensure that you reach a favourable and comprehensive agreement. 

To speak to a member of our team today, please call 01483 451 900 (Guildford) or 020 7421 9421 (London). Alternatively, please email sols@gordonsols.co.uk or fill out this contact form.