How Do Settlement Agreements Work?

When an employee enters into a settlement agreement, they agree that they will not bring any employment claim, such as a claim for unfair dismissal or discrimination against their employer. In return for entering into this agreement, an employer typically makes a settlement payment to the employee (in addition to normal contractual payments) or provides a reference for a potential new employer.

It is possible to enter into a settlement agreement at any point in the employment relationship. Usually, however, they are used when an employer is seeking to resolve a dispute with an employee, or as part of a voluntary redundancy package.

The terms of the agreement will be negotiated by the employer and employee, and then inserted into a formal settlement agreement.

The Employee must receive independent legal advice on the terms and effect of the agreement – without this, the agreement is not valid.

The settlement agreement must be drafted correctly and be watertight against claims. If an agreement is not drafted correctly, although the employer has paid out compensation to the employee under their agreement the employee may still be able to bring a claim and keep the money already paid out to them.

If you have been asked to sign a settlement agreement, specialist advice is essential to make sure that it is in your best interests and reflects your needs.  Thornber Employment Law can help with this, with years of experience in drafting accurate and clear settlement agreements.