10 interesting points that you might not know about settlement agreements

Below is an example of some points which are often overlooked by employers and employees with regards to settlement agreements.

• Settlement agreements used to be called compromise agreements

In July 2013, the name compromise agreement was changed to settlement agreement. The reason for the change was because:- “[settlement agreement] more accurately describes their content and will help to avoid any party refusing to sign an agreement on the grounds that they do not want to be seen as ‘compromising’. We also believe that ‘settlement agreement’ is a more widely understood term, being used in the treatment of contract claims.”

• A settlement agreement is only valid if the employee has obtained legal advice

A settlement agreement will mean that the employee waives all of their rights to bring a claim. This puts the employee at risk of giving up rights that they may not fully understand. To safeguard against this, an employee is required to seek independent legal advice about the terms and effects of the settlement agreement. There is no requirement for an employer to seek legal advice.

• There’s no legal requirement for the employee’s solicitor to sign the agreement

Although the legal adviser needs to be identified in the settlement agreement, there is no legal requirement that the solicitor signs it. In reality, most settlement agreements include a requirement that the adviser signs a certificate confirming advice has been given to the employee.

• Settlement agreements can be used not only on termination

Usually, a settlement agreement will record the termination of someone’s employment, however, a settlement agreement can be used to cover other situations. For example, an employee can bring a claim of discrimination while still employed and certain claims can arise even when there was never an employment arrangement. Settlement agreements can be used in these situations. Be careful though. Certain tax exemptions usually only apply to compensation paid at the end of an employee’s employment.

• Future claims can be settled in a settlement agreement

It is now widely believed that settlement agreements can be used to settle future claims, even if the employee is not aware of them. However, to do this it is important to use very clear wording.

• Sometimes it is not just about the money

Although the amount of money is often the most important part for employees, there are other important things that can be agreed, such as:- • Contribution to legal fees • Outplacement support (help with finding another job) • A detailed reference

• Off the record

A settlement agreement will usually be headed “without prejudice”. This means that the employer and employee can discuss proposals ‘off the record’ without worrying that what they say may be used in evidence against them. However, once signed by all parties, the settlement agreement usually loses its ‘without prejudice’ status.

• A settlement agreement is usually the entire agreement

Generally, a settlement agreement will include a clause to confirm that the document is the ‘entire agreement’ between the parties. If you think that you have agreed something but it is not contained in the settlement agreement, then it may not be enforceable.

• A settlement agreement isn’t the only way to settle an employment dispute

Employees can settle claims using ACAS, usually in the form of a COT3 agreement.

• Enforcing a settlement agreement

If either party believes that the other party has breached the settlement agreement, they can bring a claim in the civil courts or the employment tribunal. Interestingly, a claim in the employment tribunal can only be brought if the settlement agreement was entered into before the end of the employee’s employment.