A settlement agreement – also known as a compromise agreement – is an agreement between an employer and employee that, ordinarily, settles (or compromises) an employee’s contractual and statutory claims that they may have against an employer in exchange for a sum of money.
Settlement agreements arise for a number of reasons, for example an employer does not want to follow a strict or robust performance process, or in circumstances where an employee may have a claim against an employer and they would rather deal with it discreetly. Sometimes they are used instead of following a redundancy process.
Settlement agreements usually contain a number of obligations that an employee must adhere to until their employment terminates and these usually continue post-termination. Common obligations are those such as the requirement to return company property, to keep the agreement and circumstances leading up to it confidential and to not say anything derogatory about the employer. However, most importantly a settlement agreement will contain a clause that acknowledges that the employee is settling various claims they may have against the employer, consequently the employee agrees not to bring a claim.
Because of the nature of a settlement agreement and the possibility of an employee waiving their entitlement to bring various claims that they may have against their employer, employers ordinarily require employees to take independent advice upon the terms of the agreement. Most agreements contain a provision that employers will contribute a set amount towards the legal fees of the employee. Often the amounts contributed are negotiable and there are case authorities suggesting reasonable amounts that an employer should contribute (for example: Solomon v University of Hertfordshire). We will always attempt to try and complete our work at no cost to the employee by asking the employer to cover the cost. This is not always possible but we will always discuss this with you at the outset.
We draft and advise upon settlement agreements, and our work often involves:
- Reviewing and advising upon the agreement with the employee
- Exploring possible claims with the employee and whether they ought to be waived or investigated further
- Negotiating the terms of the agreement with employers
- Certifying our advice, often by way of a certificate, to employers
- On behalf of employers, drafting the agreement and negotiating with the employee’s representatives
Our work on settlement agreements is carried out on a fixed fee basis and given that employees presented with settlement agreements often find themselves in a situation of uncertainty we are transparent with our quotations from the outset.
