When an employee leaves employment, either through resigning, being made redundant or being dismissed, an exit package or settlement agreement, may be offered.
The advantage for the employer is that they can draw a line under an employee's departure or complaint and are protected from future claims. The advantage for the employee is the extra financial payment they will receive.
Holly Dobson, director in the Employment team at Wake Smith, offers some useful advice.
What is a Settlement Agreement?
A Settlement Agreement is an agreement or contract which prevents or limits future disputes. Agreements to compromise or settle disputes are used very frequently before Court proceedings or Employment Tribunals. Employers and employees often end the relationship with a Settlement Agreement bringing certainty to both parties.
When is it used?
It is most often used prior to the employee leaving employment. Not every employee who resigns or is made redundant or dismissed will seek or be given a Settlement Agreement, but there are advantages to both parties in many cases.
Why is it used?
For an employer it brings business certainty and management of risk at the end of an employment relationship because a properly negotiated and drafted Settlement Agreement will ensure finality in the ending of the relationship and will avoid a future employment dispute in the Tribunal or Court.
For the employee, who may have a claim, it avoids the cost and uncertainty of progressing a dispute.
How does it work? What are the key features?
Unlike other types of settlement agreements, where there are employment claims, the law provides that a Settlement Agreement will only be effective to sign away an employee's right to bring statutory claims in the Employment Tribunal, if the employee has had independent legal advice on the Settlement Agreement.
Usually the employer will pay the costs or a contribution to costs of the employee's independent lawyer.
Why is it important to know about Settlement Agreements?
An employer with a potentially tricky situation, which may result in a departing employee, needs to be aware of the possibility of compromising future claims and needs advice on what the benefits of a Settlement Agreement are.
Where can I find out more information?
There is a bewildering array of information relating to Settlement Agreements available on the internet, not all relevant to the particular circumstances you are in. Wake Smith can offer further advice on this matter.
Please contact Holly Dobson at [email protected] or call 0114 266 6660
