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Settlement Agreements

What is a Settlement Agreement?

A Settlement Agreement is a written agreement between employer and employee which records the terms on which an employee will waive specified statutory and contractual rights. These agreements usually relate to the termination of employment and will record all the arrangements agreed by the parties in relation to that departure.

The agreement must be counter-signed by a named specialist employment solicitor, or other specified independent advisor, to ensure that it is valid and binding. The agreement will confirm that the employee has been advised of and understands the nature of their rights before waiving them.

What form does a Settlement Agreement take?

Settlement Agreements need not be in any specified form, although they are usually similar in nature. The specific terms are entirely a matter for agreement, depending on the parties’ respective bargaining position. ACAS have produced a Code of Practice on Settlement Agreements.

In general terms a Settlement Agreement will set out (1) the terms of departure of the employee, (2) any compensation paid to the employee, (3) each of the claims the employee waives, (4) any tax indemnities and conditions required by the employer and (5) a statement confirming the advice the employee has received regarding the termination of their employment.

What additional matters may an employer require?

An employer will usually ask an employee to formally confirm that they have not acted in serious breach of contract before departure, that the employee will not make derogatory comments, that all company property has been returned and that the employee will continue to observe obligations in relation to confidential information and post-employment restrictions.

What additional matters may an employee require?

Employees will often seek to agree a reference, an agreed announcement, retention of any company car or mobile telephone number, an obligation from the employer in relation to derogatory remarks and a waiver of any claims against the employee.

Who bears the cost of a Settlement Agreement?

The employer will bear all of the cost of preparing the agreement and pay part or all of the employee’s legal costs. The extent of that payment is a matter for negotiation and will be set out in the Settlement Agreement. The shortfall (if any) will be the subject of a separate agreement between the employee and the adviser.

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