A settlement agreement is a legally binding document which offers both employers and employees a way to resolve a dispute or terminate employment. They are effective in ensuring an employee cannot bring a claim against you at a later stage, where there has been a dispute.
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Settlement agreements can be used in a variety of employment situations where a grievance has arisen, such as disputes over unpaid wages, unfair dismissal, discrimination claims or holiday pay issues.
They can be used to avoid lengthy disciplinary or redundancy procedures that can be costly for the employer. When they are used to terminate employment, these agreements may include the notice period, redundancy package, holiday pay, applicable bonuses, as well as what tax-free sum is being offered. These agreements are a full and final settlement for any claims that the employee has against the employer.
There are numerous advantages of using settlement agreements for employers, including:
The employer will have the security of knowing they cannot be sued at a later date, and that the employee has accepted the compensation given and will not seek further amounts.
A settlement agreement can help avoid not only expensive and time-consuming legal proceedings but also prevent bad publicity arising for the employer as a result of the case. Additionally, these agreements can include confidentiality clauses as well as restrictions on competition to protect the employer’s business.
For the employee, they know that they will receive a guaranteed amount of compensation in return for settling the dispute. A correctly drafted settlement agreement can swiftly bring closure to a dispute without the animosity, cost or length of time needed for the matter to go through an employment tribunal, where there is a much higher degree of uncertainty.
Settlement agreements provide a clean break for both the employer and the employee, allowing both sides to move on. These agreements can also cover arrangements that would not be possible in an order from a tribunal, for example, the agreement to provide a job reference. This flexibility can be highly advantageous to both the employer and the employee.
These processes are used in amicable situations where the employment has been fairly and legally ended to give protection to employers against future claims.
A number of requirements must be met to legally use a settlement agreement, one of which is an employee must obtain independent advice from a legal professional. This is because once a settlement agreement is signed, an employee will not be able to make an employment tribunal claim or any other type of claim against the employer that is covered by the settlement agreement.
It’s important to note that there are some limited exceptions to this and certain claim types that cannot be waived even with a settlement agreement, such as industrial disease claims.
Settlement agreements are usually confidential, and this means that if no agreement is reached, anything discussed during the negotiations will not be admissible in court as evidence in any employment law tribunal or court case.
Depending on the jurisdiction, there can be other requirements on how settlement agreements should be executed, and if these are not met, then they are considered invalid and can be challenged. These agreements can be very technical and involve complicated legal language.
Both sides must understand the implications and obligations of the agreement. These agreements must be carefully compiled and analysed to ensure they are legally valid. However, there are certain cases where such an agreement is not appropriate, and we can advise employers on their options in these circumstances.
We appreciate there is often some urgency to conclude a settlement agreement, and that many businesses operate across borders with different legal and cultural barriers. Our firm is structured to assist clients in such situations. We have offices in the UK, Spain, Germany, Italy and Tunisia and our multi-lingual employment lawyers can advise clients in their own language to resolve any disputes quickly and effectively.
Settlement agreements can be complicated and can have wide-reaching repercussions. If you are considering offering an employee an agreement, it is vital you obtain legal advice and guidance to get the best result.
Our expert employment lawyers have a wealth of knowledge and experience in this area and can also advise employers on processes and procedures to make sure they are compliant with the law.