A settlement agreement is a legally binding contract entered into by an employer and employee to settle any claims and/or end a period of employment.
The agreement can be used to resolve a dispute at any stage during employment or to terminate employment, either following a dispute or by way of voluntary redundancy.
Employment law expertise
At Goodwyn Herrera, we have experience of drawing up watertight settlement agreements for businesses across a range of sectors. A settlement agreement should protect your rights and interests and deal fully with all issues so that you and your employee can have a clean break.
This can be an advantageous way of dealing with issues, being fast and efficient as well as ensuring that your business is protected as far as possible. It will deal with all outstanding matters, such as holiday pay, legal claims and the provision of a reference.
As well as drawing up a robust agreement, we can enter into negotiations with your employee or their legal representative on your behalf where necessary.
Key clauses in a settlement agreement
The agreement will specify when the employment will end and usually state why, even if this is only ‘by mutual agreement’. The sum of money to be paid will be included together with the date on which it will be paid.
The first £30,000 of any payment is usually exempt from tax, but the agreement should include an indemnity given by the employee to make any payment required by HM Revenue & Customs.
Other payments such as accrued holiday, outstanding salary and bonuses will also be included.
Any notice period will be dealt with in the agreement, specifying whether this will be worked or whether a payment in lieu will be made.
The most important clauses for an employer relate to a waiver of the employee’s right to bring legal action, confidentiality and future behaviour that could damage your business. The agreement should ensure as far as possible that the employee cannot make a future claim, for example, for unfair dismissal or breach of contract. It is not possible for a waiver to be made in respect of certain potential claims, for example, a discrimination claim.
The confidentiality clause will prevent the employee from revealing information about the settlement agreement as well as from revealing details of your business to any third party.
Restrictive covenants will stop the employee from soliciting your clients after they have left and from setting up nearby in competition.
You can agree the terms of any reference to be provided to the employee, which may be a bargaining tool in your favour.
There are limits to what can be prevented by the terms of a settlement agreement and care must be taken that it has not been too widely drafted. If this happens, then a court will not enforce the terms of the agreement.
Negotiating a settlement agreement
If a dispute has arisen with your employee and you have decided to offer them a settlement agreement to end their employment, they may well wish to negotiate the terms with you.
In any event, it is a legal requirement that they take independent legal advice before signing, as it is a waiver of their legal rights. As their employer, you would usually make a financial contribution towards the costs of this advice.
We can negotiate agreement terms on your behalf to achieve the best possible outcome and to ensure that your rights and interests are fully protected.
At Goodwyn Herrera we are experienced in advising on and drafting settlement agreements. If you are considering offering a settlement agreement to an employee and you would like advice from an expert employment solicitor, call us on 020 8187 6495 or email us at firstname.lastname@example.org to make a free no-obligation enquiry.