Settlement Agreements: How They Work

Andrew Egan, an employment specialist with law firm, Charles Lucas & Marshall, explains how settlement agreements work for both employers and employees.

A settlement agreement is a legally binding confidential agreement between an employer and employee.It usually provides for the employer to make a severance payment in exchange for the employee’s agreement to waive their employment rights by not pursuing an employment tribunal or civil courts claim arising from the termination of their employment.

A settlement agreement can also protect an employer by reaffirming or including post-termination restrictions and duties of confidentiality while preventing an employee from bad-mouthing the employer. Such agreements can be used to resolve misconduct or work performance issues but also to resolve disciplinary or grievance disputes, to cover redundancy situations or even an amicable parting of the ways. Settlement agreements offer employers a quick and clean method of terminating someone’s employment without having to undertake a long and difficult disciplinary or redundancy process which usually involves substantial management time. For an employee, they offer the chance to avoid an otherwise painful and stressful disciplinary, grievance or redundancy process. An employer may try to claim that discussions and related documents are ‘off the record or ‘without prejudice’, but the employer is not always entitled to treat them as such. The Employee may argue that the relationship of trust and confidence has broken down and use discussions and any related documents as evidence in a claim for constructive dismissal and/or discrimination. It is obviously in the employer’s interests for the employee to sign the agreement. For this reason, in most cases, the employer will contribute a sum towards the employee’s legal fees in having to seek independent advice concerning the agreement.

For further information contact Andrew Egan on 01635 521212 or

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