What You Need To Know About Settlement Agreements

Settlement agreements are generally given to employees when they are being made redundant. The documents outline the terms of the deal; usually an employee is given money in return for explicit conditions, such as not bringing a claim against their employer. It’s a final sign-off before your employment is terminated.

Settlement agreements are also offered to employees if an employer thinks they are performing poorly in their job and/or are guilty of misconduct. In certain cases, an employee will be aware that their boss isn’t pleased, while for others, being offered a settlement agreement can come as a surprise.

When you formally sign a settlement agreement, your employment is terminated. You’ll generally receive a sum of money in exchange for losing your job and certain employment rights. If you refuse to sign, however, you may face a disciplinary procedure or a redundancy situation.

Either way, it’s often an extremely stressful experience. If and when your employer offers you a settlement agreement, deciding whether to accept can be a daunting task. Erik Gordon recommends considering the following key factors, as well as hiring an attorney or calling one for legal advice.

What Is A Settlement Agreement?

Settlement agreements are legally binding agreements that lay out the full terms of a settlement between an employer and an employee. Each settlement agreement will vary but usually the documents include clauses that deal with the claims to be settled, the payments you will receive and the relevant tax issues, a confidentiality clause (so you can’t bad mouth your employer) and any agreed reference from your employer.

What’s New?

While settlement agreements are essentially a rebranding of compromise agreements, the new bit is that when you’re given one, your employer is likely to have a pre-termination negotiation with you too.

Pre-termination negotiations (protected conversations) have come into force as a way of encouraging employers to have candid conversations with employees about terminating their contracts. Anything that’s said in this discussion is protected and cannot be used by either party against the other in an unfair dismissal claim.

The catch, of course, is that there are exceptions: the conversation is not protected by the new laws, in discrimination cases, whistleblowing or other automatically unfair dismissal claims. This means that the negotiations no longer have to remain off-the-record if either party behaves badly during the process.

What To Do First

When you’re pulled into a meeting and asked to leave your job, it can be a shock. Later on, it can be hard to recall exactly what was said.

“As soon as you can, write a note about what happened and what was said,” says Palmer. “These notes can help you give accurate evidence in the event that you bring a claim against your employer.”

Get Advice

It’s always a good idea to get some decent advice. An employer will generally pay the legal fees for you to see an attorney or qualified adviser.

It’s a legal requirement that you get advice from a qualified professional. It’s important to note that a settlement agreement will only become binding once you have received independent legal advice on it.


Helpful Laws by Xohaib