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Newark based Larken and Co legal expert writes about reaching an agreement to end employment disputes

Employment relationships don’t always work out and can end for many reasons, writes Lesley Purveur, of Larken and Co, Newark.

Businesses are therefore increasingly turning to settlement agreements.

These are a good alternative to having to go through what can be a long drawn-out disciplinary, or redundancy process, followed by the ACAS Early Conciliation programme and uncertainty of tribunal proceedings.

Lesley Purveur
Lesley Purveur

What is a settlement agreement?

In simple terms, it is a legally binding agreement. It normally results in the employee agreeing to waive their employment rights against the employer and not pursue any claims in an employment tribunal or other court. In return, the employee will usually receive a financial settlement.

When can a settlement agreement be used?

There are various circumstances where settlement agreements may be appropriate and are most commonly used to end employment on agreed terms, or to resolve an ongoing dispute.

It may be proposed by either employer or employee and can be offered at any stage of the relationship.

They are voluntary and neither party has to agree or enter into discussions reg-arding a settlement agreement.

Employers should remember that employees continue to enjoy full employment rights up to the date of termination in the agreement.

Requirements of a settlement agreement

It must meet a number of criteria, including being in writing, relate to a particular complaint, be signed by the parties, and record that regulating requirements have been satisfied.

The employee must receive independent legal advice on the terms, and their effect on their ability to pursue any rights in an employment tribunal.

What should a settlement agreement include?

Common elements common include:

• The amount of compensation to be paid, including payments for redundancy, unpaid wages, bonuses, pay in lieu of notice, and holiday pay entitlement;

• restrictions on future employment;

• confidential matters, such as restrictions from telling anyone they have entered into a settlement agreement’

• parties will not make derogatory comments about one other;

• inclusion of an agreed reference and form of wording for announcement to colleagues and clients.

Usually sums agreed are paid within 28 days of the date of termination.

Under current tax legislation, up to £30,000 of genuine compensation can be paid on a tax-free basis in certain circumstances. An employer will deduct from the payments under the agreement any income tax and employee national insurance contributions required to be deducted by law.

Is there a charge for the independent legal advice?

The agreement is likely to include a legal fee contribution.

Any discussions or negotiations between employee and employer over the agreement should be conducted on a without prejudice basis or as part of a protected conversation. This means that if an agreement cannot be reached, discussions cannot be used as evidence in any employment tribunal or other court proceedings.

Advantages/ disadvantages​​​​​​​

Settlement agreements end an employment relationship quickly and quietly.

They protect the business because the employee signs away almost all legal rights that they may have against the company and, in return, the business usually gives the employee more money than they would ordinarily be entitled to (depending upon the circumstances).

On the downside, there are costs involved. This may, however, be a small price to pay in the long term.

However where a settlement is not agreed, any ongoing employment relationship can be jeopardised and may have an adverse effect on the wider workforce.

If offered a settlement agreement, it is important to get advice before you sign so that an informed view can be made as to whether you are being offered a fair settlement package.

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