You have heard of Compromise Agreements, after 29 July 2013 they became known as Settlement Agreements as a result of the Enterprise and Regulatory Reform Act 2013 (ERRA 2013). The government felt the name change would increase rates of settlement and reduce the number of disputes going to the Employment Tribunal.
But what are Settlement Agreements? In the context of employment coming to an end they are a written agreement that sets out the terms upon which the employer and employee separate. They will include terms whereby an employee gives up, or waives, their right to make a claim against their employer for breach of their employment rights and other legal duties. No settlement agreement is legally enforceable by the employer unless it complies with certain requirements. The most important being that the employee must take the agreement to an independent legal adviser and get advice on whether it is a fair bargain. That adviser must sign a certificate verifying that they have advised the employee and satisfied the statutory conditions to make the settlement agreement valid. The employer pays the employees reasonable costs of taking that independent advice. It is usually between £250 to £500 plus VAT. Settlement Agreements can be also effective if carried out by ACAS.
If you are an employer offering an additional payment or settlement on termination of an employee’s contract then you need to have a valid Settlement Agreement to make it stick. You should get it drafted by an experienced employment lawyer. Done properly a settlement agreement allows an employer to be sure that they cannot be vulnerable to a claim in the Employment Tribunal.
Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.
This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice.