Managing Exits & Settlement Agreements

In certain situations, an employer may want to propose the termination of an employee’s employment on mutually agreed terms without carrying out any form of formal process. This may be for a variety of reasons, such as, perceived shortcomings in an employee’s performance, a clash of personalities or, most commonly, in redundancy situations.

Rather than go through capability, disciplinary or redundancy proceedings, with the risk of subsequent litigation and in some cases negative publicity, it is often commercially beneficial to offer an employee a settlement agreement.

What is a settlement agreement?

A settlement agreement is a legally binding contract in which an individual, whether employee or worker, waives their rights to make the claims specified in the agreement to an Employment Tribunal or Court.

Under the terms of a settlement agreement, an employer makes an enhanced financial payment to an employee, over and above their statutory entitlements, in return for a guarantee that the employee will not bring a specific claim or, more usually, any claims against them.

An employer can further protect themselves under the terms of a settlement agreement by imposing additional restrictions on an employee in relation to matters such as confidential information, intellectual property, post termination restrictions and non-disparaging obligations.

Legal fees

In order for a settlement agreement to be legally binding, it is a requirement for an employee or worker to receive legal advice from a relevant independent adviser, such as a solicitor, on the terms and effect of the proposed agreement and its effect on the employee or worker’s ability to pursue the legal rights and claims in question before an Employment Tribunal.

There is no statutory obligation on an employer to contribute towards the employee or worker’s legal fees in obtaining advice on the agreement. However, it is common for employers to do so to enable the employee or worker to seek the required advice. The level of contribution is usually between £250 plus VAT and £750 plus VAT depending on the complexities of the document.

Let us help

We have a team of specialist employment solicitors on hand to assist where you are exiting an employee from the business by means of a settlement agreement. Our team of employment solicitors are highly experienced in advising commercial clients on both the negotiations with their employees and drafting the terms of the settlement agreement. Whether you are at the start of negotiations or settlement terms are already agreed in principle, please do not hesitate to contact us should you require any assistance.