In circumstances where termination of employment is being considered, employers often ask employees to sign a Settlement Agreement (previously called a compromise agreement). These are intended to give the employer a “clean break” from any future claims by the employee (other than those provided for in the settlement agreement itself). Agreements will contain the financial terms between the employer and employee.
For an employee who qualifies for a redundancy payment, a Settlement Agreement will generally include the payment of any contractual notice that the employee is entitled to as well as a redundancy payment. These will be based on the employer’s terms or at least the statutory redundancy entitlement for the employee concerned.
An employer is entitled to bring an employee’s service to an end simply by paying their contractual and statutory entitlements. There is no legal requirement for a Settlement Agreement to be in place. A Settlement Agreement is of value to an employer as it sets out a range of legally binding assurances, confirmations and agreements given by the employee.
It is a requirement of any Settlement Agreement that an employee receives independent legal advice on the agreement itself. This ensures that the employee has been treated fairly in the eyes of the law, which enables the employer to rely upon the terms of the Settlement Agreement in the future. It is also usually the case that the employer will agree to pay for this advice.
By signing a Settlement Agreement, the employee is providing valuable benefits to the employer. As such, both parties will need to recognise that an independent solicitor will not advise an employee to sign an agreement unless it provides sufficient additional benefits, over and above their strict statutory rights.
We have a great track record of advising both employers and employees on Settlement Agreements. Head of Commercial Law, John Arnold is a member of the Employment Lawyers Association and has over 20 years experience of providing advice on such matters.