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Settlement Agreements - What you need to know!

Have you just been offered a Settlement Agreement? Perhaps you would like to use a Settlement Agreement and need help? What is a Settlement Agreement? How will it affect you? What do you need to know?

Don’t worry: In this article we will cover all of this and hope to give you all the information you need to know about Settlement Agreements by answering the following questions:




What is a Settlement Agreement?


Settlement Agreements were introduced by the Enterprise and Regulatory Reform Act 2013 and came into effect on 29 July 2013.

A Settlement Agreement is a valid agreement made between an employee and employer in order to settle a dispute.

Settlement Agreements occasionally may be used to end an employment relationship on agreed terms.

The main purpose of a Settlement Agreement is to help employers and employees to resolve employment disputes without the need for an employment tribunal.

Settlement Agreements generally include a form of payment made by the employer to the employee. It usually also includes a reference for the employee.

Settlement Agreements are voluntary, and parties do not have to agree to them or enter discussions about them if they do not want to do so.

For a Settlement Agreement to be legally valid, the following statutory requirements must be met:

1) The Settlement Agreement must be in writing.

2) The Settlement Agreement must relate to a specific complaint or proceedings.

3) The employee must receive advice from an independent Legal Adviser such as: A Solicitor, Barrister, Chartered Legal Executive or Trade Union Officer on the terms and legal effect of the proposed Settlement Agreement.

The Settlement Agreement must state the independent Legal Adviser’s name.

4) The independent Legal Adviser must have current professional indemnity insurance which covers any risk of a claim made by the employee in relation to any loss occurring from the advice provided.

5) The Settlement Agreement must state that the statutory terms which set out the above conditions regulating the validity of the agreement have been met.



What should a Settlement Agreement include?


The terms of the Settlement Agreement will be jointly agreed between the employer and employee.

The terms will be outlined in the written Settlement Agreement document and should identify the claims which the employee agrees NOT TO pursue in exchange for the agreed payment.

When an Employer uses a Settlement Agreement, it must be adapted to the employee and their individual circumstances.

A Settlement Agreement will generally contain the following terms:

· Payment of compensation for loss of employment. This can be paid tax free up to a limit of £30,000.00.

· Payment in lieu of notice if the employee is not required to work their notice period and any accrued benefits, plus untaken holiday, up to the termination date. Payment in lieu of notice is usually taxable. The standard rule is that any payment which arises from a Contract of Employment must be taxed.

· An indemnity in relation to any tax liabilities for any payments made under the Settlement Agreement.

· Restrictive covenants against soliciting clients, suppliers or employees of the employer.

· A confidentiality clause.

· The employee may be asked to confirm that they do not have an existing job offer.

· The employee must confirm that they have not committed any act of gross misconduct.

· A reference for the employee, the terms of which are generally agreed in advance.

· A clearly expressed waiver of the specific claims which the employee has or could possibly have.


When might a Settlement Agreement be offered?


Settlement Agreements may be used in many situations and they can be used at any time of an employment relationship.

Settlement Agreements are commonly used to handle potential challenging employment situations for example, employee performance and concerns over conduct.

Settlement Agreements are also used in redundancy situations where the employer is making an enhanced redundancy payment in return for a promise that an employee will not bring any claims against them.

Settlement Agreements simply enables employees and employees to go their separate ways on agreed terms.

Settlement Agreements provide final legal closure to an employment dispute in the quickest feasible time.


Specialist Settlement Agreement Solicitors


If you are an employer looking to use a Settlement Agreement or an employee who has been offered a Settlement Agreement, please contact us. We are specialist Employment Law Solicitors based in Bedford and operate nationally.

Our highly experienced employment solicitors can help you with negotiating and using Settlement Agreements, whether as an employer or employee. We also deal with the resolution of Settlement Agreements, issues and disputes.

If you would like to discuss your Settlement Agreement, any issues or disputes concerning your settlement agreement or anything raised in this article please contact us and book a consultation with one of our expert employment law solicitors.

Pure Business Law is regulated by the Solicitors Regulation Authority and is a licensed member of the Law Society of England & Wales.

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