What is a settlement agreement?
A settlement agreement is a legally binding contract between an employer and an employee that resolves disputes or potential claims that could arise during or after employment. It typically involves the employee agreeing to waive their rights to bring claims against the employer, often in exchange for a financial settlement or other benefits.
The agreement must meet specific legal requirements to be valid, including the employee receiving independent legal advice and the agreement being in writing. Commonly, settlement agreements are used to end employment amicably, avoid lengthy legal proceedings, or resolve disagreements, such as claims of unfair dismissal or discrimination.
Are you an Employee looking for settlement agreement advice? – check out our Employment Settlement Agreement Q & A For Employees blog.
When should an employer consider using a settlement to dismiss an employee?
Settlement agreements are a useful tool to make sure a dismissal is fair when either the terms of an exit have already been agreed, relationships have broken down or in cases of redundancy, disputes, poor performance, or workplace conflict where a clean break is preferable.
A settlement agreement ensures both parties agree on the terms, including compensation, confidentiality, and waiving legal claims, providing certainty and protection for the employer.
What are the benefits of using a settlement agreement?
There are several benefits to using a settlement agreement to end an employee’s employment:
1. Certainty and finality
A settlement agreement provides a clear and final resolution to potential disputes or claims, reducing the risk of future litigation. By having the employee waive their rights to pursue legal action, the employer can avoid lengthy and costly employment tribunal claims.
2. Confidentiality
Settlement agreements often include confidentiality clauses, which help protect the employer’s reputation by keeping the terms of the settlement and the reasons for the employee’s departure private.
3. Control over the process
By negotiating the terms of the settlement, the employer can have greater control over how the end of the employment relationship unfolds. This can include agreeing on the amount of compensation, the timing of the departure, and other aspects like references or non-disparagement clauses.
4. Cost-effective resolution
A settlement agreement can be a quicker and cheaper alternative to going through a formal process such as a disciplinary, grievance, absence management, performance or redundancy process, especially if the employee is likely to bring a claim, such as unfair dismissal or discrimination. It avoids the potential legal costs and administrative burden associated with a tribunal.
5. Risk management
Settlement agreements can be used to mitigate risks in situations where an employee is involved in a potential dispute or there are concerns about the employee’s performance, conduct, or behaviour. By settling, the employer can prevent the situation from escalating into a formal legal case.
Why should an employer have a settlement agreement drafted by a solicitor?
Our experienced employment team will ensure that the settlement agreement is legally compliant, tailored to the situation, and minimises risks by addressing potential claims and legal loopholes. They will draft clear, enforceable terms, protect confidentiality, and handle complex legal matters like discrimination claims or severance pay. Their expertise ensures the agreement is legally sound, balanced, and reduces the risk of future disputes, ultimately safeguarding both the employer and the business.
How do I book an appointment and what happens next?
To book your appointment, please call us on 0114 299 4890 or request a free initial consultation here.
Our expert employment team will take down some initial details and then arrange an appointment with you to advise and discuss your requirements further. Appointments are generally over the telephone or via video call. You can also request an appointment at our Sheffield office.
Our employment team are experts in drafting settlement agreements to make sure that you get the best outcome possible.
