Settlement Agreements

03 April 2016

Employees are the life blood of any organisation, but if an individual conducts themselves badly, or the strategic direction of a business means they are no longer required, an ill advised or poorly executed approach can create the circumstances upon which they may be able to claim that they have been unfairly dismissed.

In these circumstances a settlement agreement may be required to ensure the organisation and the employee agree on the terms of how they will part company.

What are settlement agreements?

Settlement agreements are legally binding agreements made between employers and individual members of staff or former members of staff which settle any dispute between them and/or prevent legal proceedings being issued in the future.

In the vast majority of cases, an individual will agree to sign a settlement agreement in exchange for the payment of a sum of money.

There does not have to be an obvious or ongoing dispute in order for a settlement agreement to be used. Employers often use settlement agreements to ensure that a departing individual has settled all claims, even those based on unknown complaints.

Does my business need a settlement agreement? Isn't an email or letter enough?

Business and organisations use settlement agreements because agreements that purport to settle or waive employment laws rights are regulated.

They are regulated because the belief is that, unless protected, individuals may sign a settlement agreement without fully understanding their rights or the legal implications.

The protection for the individual comes in the form of a list of technical and practical conditions that must be satisfied before a settlement agreement becomes legally enforceable in Court or Employment Tribunal.

One condition is that the individual must have first sought legal advice from a proscribed class of legal adviser, of which solicitors and barristers are members. Employers are not subject to the same requirement.

However, because of the technical conditions that the settlement agreement document must meet, obtaining professional legal advice is just as critical for the employer as it is for the individual.

A simple letter or email outlining the terms of settlement and the employee hitting back with his or her acceptance, is unlikely to satisfy the required conditions. Potentially this may result in your business paying a departing individual money that it would not have ordinarily paid, but those individuals still retaining rights to sue you or your business.

That is where Barlow Robbins’ experts help businesses and organisations achieve complete piece of mind.

Our solicitors advise our clients on the full range of possible outcomes, both legal and financial, that a business faces when an actual or potential dispute arises.

We will advise if a settlement agreement is the appropriate solution to the dispute and how to go about safely approaching an individual with a proposal.

We can assist on recommending what sum (if any) or other terms to offer. Very often non monetary terms, such as good reference are just as, if not more, important to an individual.

A Barlow Robbins negotiated and drafted settlement agreement will not only be water tight but also ensure that often overlooked aspects of the relationship are properly provided for.

For instance, we can advise on how best to structure the settlement agreement so that it is tax efficient. We can also ensure that your critical business information is protected and that any post termination restrictions in the individual’s contract of employment, such as the non solicitation of your customers, will continue to be enforceable.

Although a professionally drafted settlement agreement comes at a cost, the investment in the certainty that nothing can come back to bite later, is a price that employers are more than happy to pay. It also costs much less than you think.

If you are interested in finding out about how Barlow Robbins can help you resolve your dispute using a settlement agreement or otherwise, please call 01483 543210 to speak to one of the team.

How much will it cost to produce and agree a settlement agreement?

We look at each case individually and assess with you what to offer and the exit arrangements that need to be covered.

We will go through the full range of monetary and non monetary terms and the negotiation strategy. For instance, we may recommend holding a particular sum or item in reserve where there is a risk that the proposed settlement terms will not be accepted at the first time of asking.

Incorporating the terms into a properly constituted settlement agreement can take as little as 1 to 2 hours. However, depending on the complexities of the case, drafting can take in excess of 5 hours.

You should also factor into the costs equation if and how much you are prepared to contribute towards the individual’s legal costs of obtaining the required legal advice.

Each of our lawyers works on different hourly rates which reflect their experience and the type of work they are undertaking.

After the settlement agreement has been drafted and sent to the individual or their legal adviser, negotiations or proposed amendments to the settlement agreement may follow.

It is very difficult to provide an accurate general estimate of the likely time that will be spent dealing with negotiations and amendments. However where all the main terms have been agreed between the parties in principle before producing a first draft, it may only take a matter of minutes rather than hours to finalise the agreement.

In additional to our standard charging rates, we can offer fixed fees and, in certain circumstances, fees that are contingent on a particular outcome being achieved.

For a better estimate of the likely costs of your matter, we would be delighted to provide you with our range of fee options. Please call 01483 543210 for further details.

What's the difference between a compromise agreement & a settlement agreement?

There is no practical difference between a compromise agreement and a settlement agreement. “Compromise Agreement” was the name given to settlement agreements until July 2013, when it was changed because the Government believed that the old term was confusing for people and/or “settlement agreement” was better description of its purpose.

Whilst largely cosmetic in practical terms, the change of name is still important because in order to be legally recognised, the agreement must be called a settlement agreement.