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What Is A Settlement Agreement?


What Is A Settlement Agreement?


As an employer I am sure you’ve had your fair share of employee disputes to deal with. It’s very stressful and time consuming trying to resolve the issue. Often the relationship has broken down so much that there is no going back.

One way to deal with this is to have a discussion with the employee on a ‘without prejudice’ basis. This means that anything said during the ‘without prejudice’ meeting cannot be used in a court or tribunal as evidence. The purpose of the meeting is to reach a settlement agreement regarding the employment dispute. Settlement agreements are normally used to bring an employment relationship to an end in a mutually agreed way.

The following conditions must be met to ensure the settlement agreement is legally valid.

  • It must be in writing
  • It must relate to a particular complaint or proceedings
  • The employee must have received advice from an independent advisor, usually a solicitor.
  • The advisor must have insurance
  • The advisor must be identified in the agreement
  • It must state the applicable statutory conditions

As the employer you must consider what you are going to offer in the settlement agreement. The offer would normally include a proposed financial payment and a reference. A few things to consider when deciding on how much money you may offer.

  • Notice period and untaken annual leave
  • How much time it may take to resolve the problem if a settlement is not reached
  • The reasons for offering a settlement
  • The possible liabilities in dealing with any potential tribunal

An employer is not obliged to provide a reference but, where this is being considered, the parties will need to consider an agreeable form and content for the reference. A full and comprehensive reference may be provided or a short statement confirming that the individual was employed, the dates of the employment and their job title.

Employees must be given a reasonable amount of time to consider the proposed settlement agreement. Settlement agreements are voluntary. Employees may not even want to take part in a ‘without prejudice’ discussion, they don’t have to and you must not force them into a discussion.

Settlement agreements often contain clauses relating to confidentiality where both parties agree to keep the agreement itself confidential and not disclose the details to third parties.
When the employer and employee sign a valid settlement agreement the employee is then unable to bring an employment tribunal claim regarding any claim mentioned in the agreement.

However a word of warning, don’t try to do this on your own. Always take advice from HR or an employment law solicitor before you even consider having a ‘without prejudice’ discussion with an employee.


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