Settlement Agreements: A clean break

16 Mar 2023
Marina Vincent

Corporate & Commercial, Employment

An employer may offer an employee a settlement agreement when they want to terminate the employment on mutually agreed terms.  

There can be various reasons for this. It may be that an employee has raised a grievance or is threatening a claim, or the employer may prefer not to go through a long drawn-out performance review or redundancy process.

A settlement agreement provides for the termination of the employment on the basis that the employee agrees to bring no claims against the employer. The employer will give some consideration to the employee for giving up any claims they may have, which is usually a severance payment which the employee would not otherwise be entitled to. Such an agreement gives certainty to both parties and a clean break.

For the agreement to be binding the employee must not be coerced into entering the agreement, must have a reasonable amount of time to consider the agreement (ACAS recommend 10 calendar days) and have independent legal advice. This is usually from a solicitor, although some other advisers are also recognised. It is normal for the employer to cover the cost of such advice, and the agreements usually offer payment of a capped amount for costs. The solicitor will also be required to sign the document to confirm they have given advice.

Employers can offer a settlement agreement, but the employee does not have to agree to sign it. The employee will usually meet with their solicitor and the solicitor will take them through the agreement and explain the terms. They will advise the employee regarding their position and the offer being made so that the employee can make an informed decision as to whether or not to sign the settlement agreement. The solicitor may help negotiate the terms of the agreement.

The agreement is usually marked “Without Prejudice and Subject to Contract”, which is intended to keep its existence and the terms confidential until it is signed by the parties.  There are also usually confidentiality clauses binding both employer and employee which apply once the agreement is signed.  However, for claims in relation to discrimination or whistleblowing, despite the negotiations and the document being “Without Prejudice”, if the employee chooses not to sign the agreement, the fact of the offer and the terms may be put before the Employment Tribunal if the employee brings a claim.

We can advise employers on the terms of settlement agreements and draft agreements for them.  We can also advise employees who have been offered a settlement agreement.

Please contact Marina Vincent if you would like to discuss a Settlement Agreement: