What is a settlement agreement in 8 easy points?

  1. A settlement agreement is an agreement which terminates employment by giving an employee money in exchange for the employee not taking the employer to an employment tribunal.
  2. A settlement agreement is normally drafted by an employer and handed to an employee to take to a solicitor. (Sometimes the employer might send the agreement to the solicitor).
  3. The employer will pay the employee’s legal costs, normally up to a certain cap £300 to £500 for reviewing the agreement.
  4. Can anyone advise on a settlement agreement? No, a practising solicitors or person legally qualified to advise on a settlement should only be able to ‘sign off’ the agreement and is normally required to sign a certificate to confirm they are legally competent. 
  5. Should I or my employer pay my solicitor more than the cap if they ask? That depends on the complexity of the situation but not normally unless they can clearly justify why. Check out the hourly rate of the solicitor you intend to use and make it clear to them they are not authorised to spend more (money or time) than the budget you agree without your permission.
  6. A settlement agreement will normally cover a lot of legal jargon and employment laws and reference your contract of employment. It will in short be saying the company or your employer will pay you X and define your notice and any holiday payments in exchange for you not taking an employment claim with all of the employment rights that you have. For instance, discrimination legislation and claims for unfair dismissal.
  7. A settlement agreement normally comes after an ‘off the record conversation’ or a ‘without prejudice conversation’ after which a formal offer for settlement agreement is issued to you in writing.
  8. Can I initiate that conversation? Yes you can, however, tactically in many situations this might not be the right thing to do. If you are serious about leaving employment and there has been an ongoing dispute where you don’t believe you are at fault this might be a good suggestion.

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