What is a Settlement Agreement?

February 21, 2014

MTG Solicitors Making Legal Sense.pngRunning a business is tough as it is, whether your an expanding enterprise or one that is re-structuring, making the right decision, more specifically following the right processes can mean the difference between “make or break”. One really important area that is so often misunderstood is “Settlement Agreement”.

  • The agreement must be in writing;
  • The agreement must relate to a certain complaint or proceedings;
  • The employee must have received independent legal advice on the agreement (including the agreements effect on their ability to pursue the statutory right/s in question);
  • The independent legal adviser must be identified in the agreement;
  • The independent legal adviser must have insurance; and
  • The agreement must state that the necessary regulatory conditions regarding settlement agreements have been met.

Yours staff are the assets of your business, but what about when they are not?

Are you dealing with challenging employees that are causing your business difficulties? Do you want to dismiss an employee but are afraid of possible costly and lengthy claims of unfair dismissal or discrimination (amongst others)?

On average, 17,000 claims are submitted to the employment tribunal each month. These claims range from unlawful discrimination (where compensation is not capped and in 2011/12 an employment tribunal awarded compensation of £4.4 million in a claim of race discrimination) to unfair dismissal (where compensation is, generally, capped at £87,700 or one year’s wages).

What can I do to avoid liability?

A Settlement Agreement (formerly called a Compromise Agreement), can settle a dispute or provide a release or waiver of claims in order to limit potential liability of your company. This could help your company to reduce costly legal fees to defend a claim.

Under a Settlement Agreement, an employee (or worker) agrees not to pursue certain statutory employment tribunal claims against a company.

Settlement Agreements are usually used to record an employee’s terms of departure where the employee is to receive a termination payment in return for the employee waiving all actual and potential statutory (and usually common law) claims against the employer.

What makes a valid settlement agreement?

It is important that the settlement agreement meets certain conditions:

If you are looking to enter into a settlement agreement, contact ourselves today and we can give you our independent legal advice. We can also assist you in preparing a settlement agreement to stop unnecessary headaches caused by problematic employees.