What is a settlement agreement?
A settlement agreement is an agreement used by employers to terminate the employment of an employee and prevent them from bringing any claims against the company going forwards.
Typically, a settlement agreement will set out the employee’s termination date, the compensation they will receive for the loss of their employment, their statutory payments and the restrictions on the employee post termination. The main restrictions contained in a settlement agreement usually surrounds the employee’s ability to pursue claims against the employer. There may however be further restrictions which should be discussed with a legal adviser prior to signature.
The settlement agreement will usually have a list of the claims that the employee is unable to bring against the employer once the document has been signed by both parties. Ordinarily these claims are limited to claims that arise as a consequence of the employee’s employment and this should be carved out in the agreement. The agreement should also set out the claims which are not barred from being pursued after the agreement is signed.
What is a re-affirmation letter?
If on signing a settlement agreement there is an extended period between the date of signature and the termination date, the employer may ask the employee to sign a re-affirmation letter. A reaffirmation letter is usually signed by the employee shortly after the termination of their employment. The letter itself will ask the employee to confirm that the circumstances have not changed between the the date of the initial signature and the termination date.
Why do I need a solicitor?
To make a settlement agreement legally binding, the employee must obtain legal advice on the terms of the agreement.
The role of the legal adviser, who must be independent to the employer, is to ensure it is in the employee’s best interests to enter into the agreement and to ensure that the employee fully understand the consequences of the agreement itself. Once this advice has been provided, and the legal adviser is happy with the terms of the agreement, the employee will sign the agreement and the legal adviser will complete an adviser’s certificate. The agreement will then be sent to the employer for signature. Once the agreement has been signed by all parties, the terms contained in the agreement are enforceable.
If on reviewing the settlement agreement, the legal adviser is not happy with the terms contained or the amount being paid to the employee, the legal adviser should seek for the agreement to be amended by the employer prior to signature. It is very unusual for a settlement agreement not to require some amendments prior to signature.
How much will a Settlement Agreement cost?
Typically, the employer will make a contribution towards the employee’s legal fee to obtain this advice. The usual contribution for this advice is between £250 - £500 + VAT. At Pickerings Solicitors if the work we carry out is over the contribution being offered, we will seek for the legal fee to be increased by the employer. If the employer does not agree to the fee increase, it is rare that we will seek additional monies from the employee unless the matter is unusually complex or prolonged.
If you have received a settlement agreement and you would like advice on the terms contained, or if you are an employer who would like an agreement drafted, please contact our employment team on 01827 317070.
The contents of this article are intended for general information purposes only and shall not be deemed to be or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.