A Settlement Agreement can be an ideal way to bring an end to an employment that is no longer productive to either your business or your soon-to-be former employee. Although they can be perceived negatively, if used correctly Settlement Agreements have many benefits when both parties ensure they receive legal advice throughout the process.
What is a Settlement Agreement?
A Settlement Agreement, formerly known as a Compromise Agreement, is a legally binding contract between an employer and an employee. The employee agrees to not to bring particular legal claims against their employer in return for some form of benefit.
Settlement Agreements are increasingly common in England and Wales, but they are only legally valid and enforceable if they meet certain requirements.
How should you approach a Settlement Agreement?
There are several steps you need to go through with your employee to ensure that any Settlement Agreement fulfils the legal requirements and will satisfactorily terminate the employment.
You need to:
- Make sure that the agreement is voluntary. You both need to agree to the terms
- Create an open discussion and negotiation
- Ensure that your employee knows that, once the Settlement Agreement is signed, they waive their right to go to tribunal
- Guarantee that the Settlement Agreement is confidential
- Include a settlement figure and/or some other benefit for the employee, such as a reference.
How do you make sure your Settlement Agreement is legally valid?
In order for a Settlement Agreement to be valid and enforceable it must follow certain criteria set out in the Employment Rights Act 1996. These requirements include:
- Putting the Settlement Agreement in writing
- Relating the agreement to a “particular complaint” or “particular proceedings”
- The employee receiving legal advice from a relevant independent adviser on the proposed agreement and the effect on their ability to pursue any rights before an Employment Tribunal
- The Settlement Agreement stating that the conditions regulating Compromise Agreement/Settlement Agreements have been satisfied
The most important part of the criteria is that employees must receive legal advice from a qualified and insured independent legal adviser before they sign the Settlement Agreement.
If you want to know more about Settlement Agreements, or have an issue with an employee that may escalate to require a Settlement Agreement, talk to HR That Helps today.