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A settlement agreement is often referred to as a ‘severance’ or ‘redundancy agreement’ and is previously known a ‘compromise agreement’.
A settlement agreement is a formal and legally binding contract between an employee and employer. The settlement agreement prohibits employees from suing their employer, usually after they have received a sum of money in return for agreeing not to bring certain claims against their employer.
Once a settlement agreement has been signed by an employee they will no longer be able to make an employment tribunal claim or any other type of claim that has been listed in your agreement. It is important that your agreement does not include unfair terms, which is something we will be happy to advise you upon on sight of the settlement agreement.
For a settlement to be legally binding, an employee must receive independent legal advice. At Browell Smith and Co Solicitors we will be happy to provide you with the immediate advice you need, and guide you through the process.
The requirements of a legally binding settlement agreement:
ACAS have issued a statutory Code of Practice on Settlement Agreements, which sets out how settlement agreements should operate and also provides best practice of how pre-termination negotiations should be undertaken.
The code is not binding, but employers would need to justify why they deemed it not necessary to adhere to it.
The employee must seek specialist independent legal advice before signing the settlement agreement. The employment solicitor should advise the employee on any potential claims so that the employee fully understands the legal issues and the value of any potential claims.
As employees have rights under UK law, anyone signing a settlement agreement should seek legal help before signing as a solicitor will make sure your rights are protected and that you are aware and fully appreciate these rights before you sign them away.
These rights fall under three main categories:
Contractual rights – These rights are set out in your contract of employment and will state your job title, your holiday entitlement, your right to be paid a salary, any other benefits as well as your notice period.
Statutory rights – These rights derive from UK statute and any claims regarding these rights can only be pursued in an Employment Tribunal. These rights protect you from a wide variety of things including:
Common law rights – These rights are derived from the general law and regard how you are treated by your employer. These may involve aspects such as negligence, defamation and personal injury and any claims regarding these rights will have to go through the High Court or County Court.
This is by no means an exhaustive list. Without the appropriate legal advice, employees run the risk of signing away or waiving their rights by signing a document that they do not fully understand.
The advantage to the employer of getting a settlement agreement is that the employer can be sure the employee will accept the settlement and not seek further compensation. The advantage of a settlement agreement to the employee is that they receive a guaranteed amount of compensation in return for settling their claims.
The terms included in a Settlement Agreement will vary depending on the circumstances of the particular case. However, it is common for Settlement Agreements to contain clauses dealing with the following:
Settlement agreements can be written in very formal language and can refer to sections of Acts and Regulations which you may never have heard of. Therefore, it is important that you understand the effect of the settlement agreement. It is a legal requirement that you get professional advice on what the agreement means. It is also a legal requirement that your adviser signs the settlement agreement to confirm that advice has been given.
The cost of advice under a settlement agreement will in the majority of cases be covered by your employer, meaning that you may not have to pay anything for this advice personally. We will confirm this to you on initial contact.
If you have been offered a settlement agreement by your employer and would like to talk this through with our legal experts please contact us on 0191 691 3418 and we will be happy to discuss your options and guide you through the process.
Alternatively, you can complete our online enquiry form at any time and we will call you back.
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