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Settlement Agreements

A settlement agreement is a contract offered by an employer, usually when the contract of employment of an employee has come to an end or the employer wishes to bring the employee’s employment to an end, and there is the possibility of the employee bringing a claim or claims against the employer in the Employment Tribunal, County Court or High Court.  

The claims could range from unfair dismissal or discrimination to claims for holiday pay and unlawful deductions from wages.

The agreement usually provides for the employee to receive a certain amount of money as compensation for loss of employment, and in return the employee agrees to waive their rights to bring a claim or claims against the employer in the future.

In order for such an agreement to be valid the employee must have been advised on the agreement by a ‘Relevant Independent Adviser’.   If this is not done the agreement is not legally binding.

Settlement Agreement Requirements

Section 203(3)(c) of the Employment Rights Act 1996 regulates the validity of settlement agreements.   This provides the following:

  • The agreement must be in writing
  • The agreement must relate to the particular proceedings. (This means that the particular claims the employee might have against their employer must be identified within the agreement)
  • The employee must have received advice from a ‘relevant independent adviser’ as to the terms and effect of the proposed agreement and, in particular, its effect on their ability to pursue their rights before an employment tribunal
  • There must be in force, when the adviser gives the advice, a contract of insurance, or an indemnity provided for members of a profession or professional body covering the risk of a claim by the employee in respect of loss arising in consequence of the advice
  • The agreement must identify the adviser; and
  • The agreement must state that the conditions regulating settlement agreements under the Act are satisfied

One of the individuals identified as a ‘relevant independent adviser’ under in the Act is a solicitor who holds a current practising certificate.

The Dutton Gregory Employment Team can advise employers in relation to drafting, proposing and negotiating the terms of a settlement agreement and can likewise advise employees on the terms and effect of the agreement and where suitable assist with negotiating terms. The Dutton Gregory Employment Team are also able to discuss and agree fixed fees or hourly rates for work carried out in relation to settlement agreements and can advise groups of employees for agreed rates should suitable situations arise.