What is an Employment Settlement Agreement?

Employment Settlement Agreements | Robertsons Cardiff & Barry

An employment settlement agreement is a lawful contract between an employer and his employee. This agreement can resolve any potential claim the employee might make against their employer, which is usually used in concurrence with the employee’s termination.

In some cases, there is no termination of the job; however, the agreement settles any continuing differences between the employer and employee.

What should an employment settlement agreement contain? 

The agreement has certain standard terms, which are –

  • The employer has to pay the outstanding balance for salary, bonuses, commission, and accumulated holiday pay.
  • After it is agreed to terminate the contract, the employer must provide the agreed termination payments to the employee. The settlement amount is based on various factors like employee performance, work experience in the specific company, and current salary.
  • An employee can request the employer to give a good reference for the future job application, however, the employer has every right to deny this request if the employee has shown poor performance. 
  • A Confidentiality clause/Non-disclosure Agreement and a Non-Derogatory clause are typically included for the benefit of both employers as well as employees.
  • The employer pays for the legal costs incurred by the employee.
  • Typically, an employee will reach an agreement to not bring any employment claim against the employer and vice versa. 
  • The compensation amount of up to £30,000 will be tax-free for the employee.
  • The agreement must have the signature of either an authorised person from the Trade Union, a member of the Citizens Advice Bureau or a solicitor specialising in this area of law.

Who can be a party to an employment settlement agreement?

The agreement can be between an employee and an employer; however, in certain cases, a person who is not an employee of the company can also enter this agreement. For instance, an individual who felt discrimination in a job interview can be a party to this agreement. However, this agreement is only for individuals and not for groups and companies.

How much money can I get in an employment settlement agreement?

The compensation amount for a settlement agreement is not the same for all the cases and depends on various factors.

The compensation amount is based on several factors, some of which include:

No Notice Period – In this case, the settlement agreement is brought in to terminate the employment there may be no standard notice period. In this case, an employer must give employee, that which they would have earned during the notice period.

Bonuses – The employer should pay any bonuses that the employee was eligible for. 

Salary and Benefits – This makes sure that the employee receives his/her regular salary and other benefits until the agreed date of termination.

Termination Payments – This is an amount that the employer gives an employee as a lure to sign the settlement agreement. 

Accrued Days Off – The holidays that the employee has accumulated and not used during his/her employment tenure must be paid.

Restrictions Payments – If the employer specifies limitations in the settlement, like for example, not setting up a rival business within a stated distance or time or working for a rival, then they will usually have to provide additional payment. 

Redundancy Payment– In the case of redundancy, the employee will be eligible for redundancy pay. This amount depends on various factors, like, time in the service, job title and position, and current salary.

 Legal Costs – Usually, the employer is to pay the fees incurred by the employee looking for legal advice about the settlement.

Is an employment settlement agreement legally binding? What happens if it is breached?

Yes, a settlement agreement once signed is legally binding on both the parties involved. If any party breaches this agreement; the persecuted party is free to raise a claim.

Some settlement agreements have a binding repayment clause.  Should the employee breach the agreement, the employer can recover a certain percentage of the money paid to the employee and in most cases will comprise any legal fees that the employer had to pay because of the breach.

For further information please contact our employment law specialists via law@robsols.co.uk.

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