Settlement Agreement

Settlement Agreements are contracts between and Employer and Employee terminating the employment relationship usually based around some compensation to the Employee some of which can be paid tax free  (subject to an indemnity in favour of the Employer – a sort of insurance policy that Employee will bear the responsibility for any further tax deemed payable by HMRC) and, often, the provision of a reference. The Employee, in return, agrees to a number of conditions, the most important being that they will not issue proceedings (or pursue a grievance) against their Employer in relation to their employment or the termination of it, save for some very limited exceptions.  Importantly, such Agreements are without prejudice until they are signed by all parties so neither party can rely on the document before a Court or Tribunal unless it has been fully executed. This leaves an Employer free to explore termination options and negotiate terms without fear of being seen to admit liability in a legal context.

Such Agreements can be used for a number of reasons and are not limited to redundancy situations, it can be used where all parties want to avoid prolonged and uncomfortable grievance or disciplinary procedures or even where an employee has just voiced a desire to leave the business. They can also be used where a Transfer of Undertaking is underway or concluded, especially where the New Employer might require a relocation or changes to terms which cannot be agreed.

Settlement Agreements frequently impose other fairly onerous conditions upon the Employee including a requirement that the Agreement be kept confidential, the Employee does not make disparaging comments about their Employer and returns company property within a specified time frame. Occasionally Agreements include obligations to assist in internal or judicial investigations and the imposition of additional or extended restrictive covenants.

It is possible for a Settlement Agreement to be entered into at any time where the employment relationship is either coming to an end or has already come to an end, even where a dispute has been logged with ACAS or litigated before the Employment Tribunal, though, in those circumstances a COT3 Agreement is often used.

T G Baynes drafts Settlement Agreements for its Employer clients on a regular basis. We are experienced in acting for both public (where the Redundancy Payments (Continuity of Employment in Local Government etc.)(Modification) Order is relevant and requires careful drafting ) and private organisations in this respect. We provide one off, bespoke drafting for individual employees and situations as well as a standard form template for the Employer to use at its discretion.  We can assist Employers in explaining the terms of the Agreement (not a substitute for the Employee taking their own independent legal advice which is a legal requirement) and in drafting the accompanying open and without prejudice correspondence.  We can also aid in the negotiation of terms and manage the process of signatures with you.