By Nicola Grant

Chartered Legal Executive

We all have to acknowledge that these are difficult times, particularly for certain industry sectors – the hospitality, retail and travel sectors, to name but a few. As a result, many employers are finding that they have no alternative but to restructure or even close their businesses, resulting in inevitable job losses. In recent weeks we have seen several large organisations going into administration, and we are unfortunately likely to see a similar pattern over the coming months.

2020 has seen an increase in the number of settlement agreements (previously known as compromise agreements) being offered to employees to end the employment relationship.

What is a settlement agreement?

A settlement agreement is a legally binding document between an employer and an employee which settles any employment-related claims the employee may have against their employer, for example in respect of unfair dismissal or discrimination. Settlement agreements can be used in situations where a dispute has arisen in the employment relationship and the parties wish to settle the dispute on agreed terms. They are also increasingly used in redundancy situations where the employee agrees to give up their employment rights to bring a legal action against the employer relating to their redundancy, for example if the employer has failed to carry out appropriate consultations, usually in exchange for the employer offering to pay an enhanced redundancy payment to the employee for the loss of their employment.

A settlement agreement has potential benefits for both the employer and employee. From an employer’s point of view, they get the certainty of knowing that the employee cannot take them to an employment tribunal, whilst the employee receives the benefit of a financial package without the uncertainty and costs involved in having to make an employment tribunal claim.

Am I obliged to sign the settlement agreement?

No, there is no obligation for you to agree to the settlement terms offered to you or indeed to sign the settlement agreement at all. If you do not sign the settlement agreement, your employment will continue unless and until it is terminated by either you or your employer. If your employer subsequently terminates your employment, you may be entitled to make a claim against it in the employment tribunal if that dismissal is unfair, for example if your employer has not followed appropriate procedures, or if you are dismissed in breach of your contract of employment.

Do I need to obtain legal advice on a settlement agreement?

Yes, you do. A settlement agreement will only be binding upon the parties if the employee has received legal advice on the terms and effects of the settlement agreement before signing. Employers must give employees a reasonable amount of time to receive the appropriate legal advice and cannot insist on an employee signing without having received advice. An appropriately qualified “relevant independent adviser” such as a solicitor, chartered legal executive, certified union official or certified advice centre worker will sign a certificate to confirm that they have advised you in relation to the settlement agreement.

Can I negotiate?

Yes, you can. An employment lawyer can assist in trying to negotiate the most favourable terms on your behalf, such as increased compensation or an agreed reference. You should bear in mind that negotiations are not always successful and you may have to decide whether to accept what is being offered.

Who pays the costs?

Your employer will usually pay your legal costs, or at least contribute towards those costs. You should check the amount your employer is offering to pay towards your legal costs before contacting us for an estimate of likely costs involved depending on your individual circumstances.

What do I do next?

If your employer has suggested a settlement agreement in order to end a dispute and/or your employment, you should speak to an experienced employment lawyer as soon as possible. Please contact us on 01749 836100 and we will be happy to help.