At some point, you may be faced with the difficult decision of ending an employee’s employment. Depending on the circumstances, many employers choose to terminate the employment by asking the employee to sign a Settlement Agreement.
It is a legal requirement that if you offer a Settlement Agreement to an employee that they receive specialist legal advice before signing a settlement agreement, from an independent solicitor of their choice, which is normally paid for by the employer. Once signed, a Settlement Agreement usually prevents an employee from bringing claims in the Employment Tribunal or Court.
In essence, a Settlement Agreement financially compensates the employee whilst limiting the employer’s liability so that a line is drawn under the end of the employment relationship with a “clean break” being achieved.
A Settlement Agreement is a legally binding contract between an employer and an employee that typically sets out the terms under which the employee will leave their employment and confirms that they will not pursue any legal claims against their employer, in exchange for agreed financial and non-financial terms.
The Advisory, Conciliation and Arbitration Service (ACAS) guidance states that employers should give employees a minimum of 10 calendar days to decide whether they want to accept a Settlement Agreement.
A solicitor will ensure the Settlement Agreement meets all legal requirements, including proper structure, legal wording, and valid certification. Without this, the Settlement Agreement will not be enforceable.
In most cases, an employer will offer to pay a fixed contribution toward their employee’s legal fees, typically ranging from £500 to £750 + VAT. If the employee being dismissed holds a senior position or the matters around their employment exit are particularly complicated, then an employer may provide a larger sum for legal fees to reflect the amount of additional time a legal advisor may need.
Confidentiality clauses are among the most common features of Settlement Agreements. They are typically included by employers for legitimate reasons, such as:
These provisions may apply to both the substantive allegations (such as workplace grievances or claims of unfair treatment) and the financial and procedural details of the settlement itself. Although confidentiality clauses in Settlement Agreements are legal and commonly used, they are not without limits, and there are clear restrictions under the law on how far they can go, otherwise, the clauses will be deemed unenforceable.
Settlement Agreements can offer a quick and mutually beneficial resolution, but they are entirely voluntary. No employee can be forced to agree to one, and they have the option of refusing to sign a Settlement Agreement. Refusing to sign a Settlement Agreement doesn’t close the door on resolution between employer and employee — it may lead to further negotiation, especially if the employer wishes to avoid legal proceedings. However, some employers may choose not to revisit the offer and will instead proceed with formal action, e.g. disciplinary or redundancy.
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