Settlement Agreements In Employment Law

When relations between employer and employee breakdown or a serious disciplinary issue arises, employers are faced starting a disciplinary process that, if they get it wrong, can give rise to claims against them from the employee. For the employee, they risk going through a disciplinary process that goes against them, and a blemish on their employment record which may make getting a new role much more difficult.

A settlement agreement is a mechanism for the parties to go their separate ways without a disciplinary process. It settles the statutory and contractual claims of the employee – to be valid, the agreement needs to be recorded in writing and meet certain legal requirements. This includes the employee receiving legal advice from a qualified person, such as a solicitor, who explains what it means.

 Some claims can’t be settled, and the solicitor will want to ensure that accrued pension rights and certain personal injury claims are excluded from the settlement.

 There can be financial advantages to both parties, with the employee sometimes being able to be paid tax efficiently, whilst saving the employer national insurance contributions and giving certainty.

However, these types of agreements have to be used lawfully. It is not uncommon to include confidentiality commitments. However, in recent years, some employees have spoken out in breach of these commitments where the confidentiality clause has been used to gag an employee who may have complained about sexual harassment and misconduct by others. These clauses should not be used in these circumstances,

Our director, Greg Hollingsworth, regularly advises on Settlement Agreements.


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