Resolving workplace disputes: Settlement Agreements

We have previously highlighted that Workplace Mediation can be one way of resolving disagreements in the workplace. However, in some cases, a Settlement Agreement may be one sensible option for both parties to consider and they are commonly used by employers.

What is a Settlement Agreement?

A Settlement Agreement (formerly known as a Compromise Agreement) is a legally binding agreement between an employer and an employee under which the employee agrees to settle their potential claims and in return the employer will agree to pay financial compensation.

A Settlement Agreement may settle more than just employment claims but to validly settle statutory employment claims, a Settlement Agreement must satisfy several conditions that must be met. One of these conditions is that the employee must have received legal advice from a relevant independent adviser, for example, a qualified lawyer. This is why it is common practice for the employer to contribute towards the cost of the employee’s legal advice.

Other than the legal requirements, the contents of a Settlement Agreement are agreed between the employer and employee. Examples of common clauses include:

  • Compensation for loss of employment
  • Neither party saying or publishing anything derogatory about the other party
  • Confidentiality
  • Return of the employer’s property
  • Agreed reference from the employer

When can they be used?

Employers should not simply offer a Settlement Agreement to an employee without taking legal advice first. This is because every employer owes their employees a duty of trust and confidence and must be careful not to breach this duty, leading to claims for unfair dismissal. There is a process for offering a Settlement Agreement which involves having what is known as a ‘protected conversation’ and the employer should take advice to ensure this is done properly.

If you would like help with a Settlement Agreement, or any other employment law topic, please contact us 01730 268211 or linda.wilson@macdonaldoates.co.uk

N.B. Please note that the above information is a guide only and does not constitute legal advice. We recommend seeking specialist legal advice on your own particular circumstances