A settlement agreement (formerly known as a compromise agreement) is a legally binding contract between an employer and an employee. It is used to terminate employment on agreed terms, typically where the employee agrees not to pursue any claims against the employer in return for a financial settlement. For the agreement to be legally valid, the employee must receive independent legal advice on its terms and effects.
The Purpose and Process of a Settlement Agreement
Settlement agreements are commonly used to resolve workplace disputes, including potential unfair dismissal claims, without the need for an Employment Tribunal. The process usually begins with the employer offering the agreement, which will set out the financial terms and any other conditions, such as an agreed reference or a confidentiality clause. The key legal requirement is that the employee must obtain advice from a relevant independent adviser (such as a qualified solicitor or certified trade union official) on the terms and effect of the agreement. The adviser must sign a certificate confirming this advice has been given, which is a statutory condition for the agreement to be enforceable and for the employee to waive their right to make a claim.
Key Parameters of a Settlement Agreement
| Parámetro | Valor |
|---|---|
| Legal Requirement for Validity | Employee must receive independent legal advice. |
| Typical Use | To settle potential employment claims (e.g., unfair dismissal). |
| Key Consideration | Once signed, you generally cannot bring a claim covered by the agreement. |
| Adviser's Role | Must be independent and sign a certificate of advice. |
Important Practical Considerations
When presented with a settlement agreement, it is crucial to take your time and not feel pressured to sign immediately. The independent legal adviser's role is to explain the agreement's implications, including the value of the settlement offered compared to what you might achieve through a tribunal claim, and to negotiate better terms if possible. Remember that the employer will usually contribute a sum towards your legal fees for obtaining this advice. You should carefully consider any restrictive covenants, confidentiality clauses, or agreed references within the document, as these will bind you after your employment ends.
Settlement agreements are significant legal documents with long-term consequences. Before signing, it is essential to obtain comprehensive, independent legal advice to ensure you fully understand what you are agreeing to and that the terms are fair. We strongly recommend consulting a qualified employment solicitor for advice specific to your situation.
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Why is independent legal advice a legal requirement for a settlement agreement?
The law requires it to ensure the employee fully understands they are giving up their statutory rights to bring claims (such as for unfair dismissal) and that the agreement is entered into knowingly and voluntarily. The adviser's signed certificate is proof this condition has been met.
Who pays for the legal advice on a settlement agreement?
It is standard practice for the employer to make a contribution towards the employee's legal costs for obtaining the necessary independent advice. The contribution amount is often specified in the agreement itself.
Can I negotiate the terms of a settlement agreement?
Yes. The initial offer is often a starting point. Your independent legal adviser can negotiate on your behalf to seek improvements to the financial package, the wording of the reference, or other terms before you decide to sign.
What happens if I sign a settlement agreement without advice?
The agreement will likely be invalid and unenforceable. This means you may not receive the promised settlement, and you might still be able to bring an employment tribunal claim, as you have not validly waived your rights.