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In this article one of our specialist employment solicitors, Chris Hadrill, answers the question: What should be included in a settlement agreement?” and explains what employees should look out for in their settlement agreement

  1. Why use a settlement agreement?
  2. Why do employers offer settlement agreements?
  3. What should be included in a settlement agreement?

Why use a settlement agreement?

Settlement agreements are a form of contract which allow employers and employees to settle potential claims that the employee may have arising from their employment or the termination of their employment. They allow both parties to the settlement agreement to clearly understand what their responsibilities, to outline what payments the employee can expect to receive upon termination of their employment, and to confirm that the employee will not pursue litigation against the employer once the settlement agreement has been signed.

Why do employers offer settlement agreements?

Employers offer settlement agreements for a variety of reasons, including:

  • To settle an existing dispute with an employee (for example, if an employee has raised a complaint that they think that their redundancy is unfair or that they are being discriminated against then the settlement agreement may be intended to limit the employer’s liability in respect of those threatened claims);
  • To avoid having to go through a potentially laborious capability process or to avoid dealing with grievances, subject access requests etc.;
  • To allow the parties to have a clear and easily-understood outline of exactly what was agreed upon termination; and/or
  • Because it may simply be what the particular employer does in such situations

What should be included in a settlement agreement?

The following clauses should normally be included in a settlement agreement:

  • A clause specifying what date your employment will terminate on;
  • A clause outlining what the outstanding balance of your salary, bonus, commission, and holiday pay should be;
  • A clause specifying that a ‘termination payment’ will be paid to you and what the value of the ‘termination payment’ will be (this can normally be paid tax-free as compensation for termination of employment, up to a maximum of £30,000);
  • Standard confidentiality clauses protecting the reasons for terminating employment, the fact of the settlement agreement, and the terms of the settlement agreement;
  • A ‘non-derogatory’ clause which would prevent both parties from making adverse or derogatory comments about the other;
  • A clause confirming that the employer will pay the employee’s legal fees up to a certain amount (normally £500 plus VAT);
  • A ‘waiver’ clause confirming that the employee is agreeing to waive any and all claims that they may have arising out of their employment and the termination of their employment (although there are some exceptions to this, such as claims for latent personal injury and accrued pension);
  • A clause entitling the employee to a specific form of reference once their employment has terminated;
  • A clause confirming that the employee must receive independent legal advice from a ‘legal adviser’ (such as a solicitor)

There are, of course, other clauses which can also be included in a settlement agreement, and what will need to be included in each settlement agreement will depend upon the specific circumstances of each case.

About

Redmans Employment Team deal with employment matters for both employers and employees, including drafting employment contracts and policies, advising employers and employees on compromise agreements, handling day-to-day HR issues, advising on restructures, and handling Employment Tribunal cases for both employers and employees Call 020 3397 3603 to speak to one of the members of our employment team or email us on enquiries@redmans.co.uk. Redmans have offices in Richmond, Chiswick, Hammersmith, Fulham, Kingston, Wimbledon, Ealing, Kings Cross and Marylebone (meetings strictly by appointment only).

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    Arabella B

    I am so grateful to Caroline Lewis at Redmans Solicitor’s for helping me with my Unfair Dismissal Case. I was seriously impressed how easy Redmans made the whole case, and am very happy with my Settlement. I have recommended your firm to at least 5 people in the last 3 months.. Thank you Caroline and everyone at Redmans. You are Brilliant .

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    Mel Chin was my Legal Executive when I engaged the services of Redmans Solicitors to help with a redundancy matter. She was incredibly approachable and professional from start to finish. Specially I have to mention regarding prompt reply to all my email queries, It was super quick. I would thoroughly recommend Mel Chin. Many Thanks

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    Anonymous

    I have been very pleased with the support I got from Redmans Solicitors on my case with my employer. Caroline has always helped me to put things in perspective and showed me different scenarios ultimately to help me taking the right decision. She was very professional and always available when I needed, and at the same time also emphatic which I found also really important to establish a strong relationship. Will definitely recommend!

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    Prompt and efficient response to my enquiries. Excellent negotiating skills with my employer which considerably improved the terms of my settlement agreement.

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