What should be included in a settlement agreement? Employment Contracts

A settlement agreement is a legally binding contract used to settle disputes between an employer and employee. For the agreement to be lawful, the correct processes must be followed, and certain conditions must be met in order for it to be valid.

In this article we will look at the relevant legislation and what should be included in a settlement agreement put forward by an employer.

What are the conditions of a settlement agreement?

As stated under section 111A of the Employment Rights Act 1996, the following conditions must be met for a settlement agreement to be legally binding:

  • The agreement must be in writing;
  •  The agreement must relate to a particular complaint or proceedings;
  •  The employee must have received advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue that complaint or proceeding before an employment tribunal;
  •  The independent adviser must have a current contract of insurance or professional indemnity insurance covering the risk of a claim by the employee in respect of loss arising from that advice;
  • The agreement must identify the adviser;
  • The agreement must state that the applicable statutory conditions regulating the settlement agreement have been satisfied.

Outside of the above legal requirements a settlement agreement will often cover details around notice pay, holiday pay, contractual benefits, bonuses, shares, compensation payments, non-disclosure agreements, waiver and settlement of employment claims, tax indemnities, practical issues, legal costs, warranties from the employee, and references.

All of this should be fully negotiated between both parties and employees should be offered a reasonable period (best practice suggests a minimum of 10 calendar days unless agreed otherwise) to consider a settlement offer.

What happens if a settlement agreement is not reached?

The process of drawing up a settlement agreement is one of negotiation. Throughout proceedings both parties are free to make proposals and counter proposals until an agreement is reached. All discussions are confidential and without prejudice which in short means it is off the record and cannot be used against either party if it does not go ahead.

In the event a settlement agreement is not satisfactory and isn’t completed, the relevant procedures relating to the complaint or dispute must be followed. This may be in the form of performance management, capability, disciplinary of grievance processes.

Help and support from Beswicks Legal

If you wish to seek professional advice on settlement agreements, either as an employer or an employee, please contact us. Our employment law specialists are on hand to clarify your position and outline your options to help you make an informed decision.

For more frequently asked questions regarding settlement agreements and redundancy, take a look at our dedicated Legal Hub or get in touch with our team.