Episode 2: What is a Settlement Agreement?

Received a settlement agreement? Email geoffrey@settlementsolicitor.uk or call 07595 884 661 for a free, fast, confidential service.

The Settlement Agreement Solicitor

Episode 2: What is a Settlement Agreement?

Welcome to the Settlement Agreement Solicitor podcast, your go-to guide for everything you need to know about settlement agreements. I am Geoffrey Caesar, a solicitor with over 20 years of experience with settlement agreements. In this episode, I answer the question, what is a settlement agreement? 

Whether you're an employee or an employer, this is a term you may well need to understand. So let's break it down. 

What is a settlement agreement?

A settlement agreement is a legally binding contract between an employer and an employee. Under a settlement agreement, the employee agrees to waive their rights to bring certain legal claims against the employer, and usually there's a financial settlement involved. Think of it like a clean break. Both parties walk away with a clear understanding of the terms and the employee gets compensated in some way, usually financially. 

You may have heard the term ‘compromise agreement’ in the past, and it might still slip into usage today. Compromise agreements were rebranded to ‘settlement agreements’ back in 2013. This change was made thanks to the Enterprise and Regulatory Reform Act 2013. Why the switch? Officially, it was to make things clearer and more accessible. I suspect it had more to do with the negative connotations of the word ‘compromise’. Successive governments have preferred that employees and employers settle their differences without recourse to the employment tribunal. So, switching from compromise to settlement was most likely an attempt to encourage more parties down that route. 

Key features you should know

Now let's discuss the key features that distinguish a settlement agreement from any other type of agreement or contract. 

Firstly, waiver of claims. The employee gives up their right to bring claims such as unfair dismissal, discrimination or breach of contract. 

Secondly, financial compensation. The employee usually receives a financial payout. How much? That depends on the situation. 

Thirdly, legal advice. For the agreement to be effective, the employee must get independent legal advice. That's where people like me come in. 

Fourthly, confidentiality. Have you ever wondered why people don't talk about these agreements? That's because they often include confidentiality clauses which prevent either party from mentioning the existence of the settlement agreement let alone revealing any of the terms of the agreement, subject to very tight exceptions, such as discussing it with your solicitor, your partner, or your tax advisor. I hasten to add that I have not listed those people in order of importance!

Fifthly, mutual agreement. No one can be forced to accept a settlement agreement. Both parties must agree to it voluntarily. 

The legal stuff

Of course, there is legislation and case law behind all of this. The Employment Rights Act 1996 and the Equality Act 2010 are the most significant acts of Parliament to be aware of, but there are many more pieces of legislation which determine what rights can and cannot be waived under a settlement agreement. Case law has clarified some points of ambiguity over the years and led to the emergence of the fairly standard format of settlement agreements that we see today. However, be aware that there are still a lot of different forms of settlement agreements. For example, some might be a few pages long, whereas others can run to dozens of pages. 

Any solicitor specialising in this area of law, like I do, must have an in-depth and comprehensive knowledge of the entire field of employment law. Only use a solicitor specialising in employment law to review and advise you on your settlement agreement. 

Section 203 of the Employment Rights Act 1996 is the single most important piece of legislation for forming a legally binding settlement agreement. It says that you can contract out of employment rights, which is another way of saying that the employee can waive their rights to bring specific claims against their employer, but only if certain conditions are met. And that's where settlement agreements come in. 

What makes a settlement agreement valid? 

There are six key ingredients to making a settlement agreement valid. 

1. The agreement must be in writing. 

2. The agreement must relate to proceedings whether actual or potential which must be identified in the agreement. 

3. The employee must obtain advice from a relevant independent advisor. 

4. The settlement agreement must name the relevant independent advisor. 

5. The relevant independent advisor must have insurance in place to cover the risk of an employee's claim when giving advice. 

6. The agreement must reference that the statutory conditions regulating settlement agreements under the Employment Rights Act 1996 have been met. 

The term relevant independent advisor is given a specific meaning regarding settlement agreements. The legislation on this point is clear, but it is detailed, so I will cover this in a separate episode. The key point to bear in mind is that if you receive a settlement agreement, or if you expect to receive one, your top priority should be to contact an employment lawyer who specialises in settlement agreements such as myself. 

So, a settlement agreement is essentially a formal deal where the employee agrees not to pursue legal claims in exchange for compensation. It's a win-win for both parties, especially when you want to resolve things amicably and move on. And remember, getting independent legal advice is non-negotiable if you want the agreement to be valid. 

That's it for this episode of the Settlement Agreement Solicitor. If you are facing a settlement agreement or want to learn more about them, subscribe to the Settlement Agreement Solicitor for more tips and insights. 

I'm Geoffrey Caesar, and I will catch you in the next episode.