A settlement agreement is a legally binding contract between employer and employee which settles claims that the employee may have against their employer.
A settlement agreement is usually used in connection with ending the employment, but it doesn’t have to be. A Settlement Agreement can be entered into some time after the employment has ended, this is usually when the individual has raised an allegation of unlawful treatment, eg discrimination or unfair dismissal and the parties have agreed to a settlement of the same – this will invariably involve some financial pay off. They can also be used to resolve an ongoing workplace dispute, for example, a dispute over holiday pay. These agreements can be proposed by either an employer or an employee, although it will normally be the employer.
A settlement agreement does 2 things : (1) it records the terms which have been reached by way of a settlement, including the financial terms and (2) it acts as an effective waiver of the individuals employment rights.
For the settlement agreement to be legally binding the following conditions must be met.
- The agreement must be in writing.
- The agreement must relate to a particular complaint or proceedings.
- The employee must have received advice from a relevant independent adviser, such as a solicitor or a certified and authorised member of a trade union.
- The independent adviser must have a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from the advice.
- The agreement must identify the adviser.
- The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.
Once a settlement agreement is signed by all parties including the solicitor or trade union official who has advised the individual on it, he or she will not be able to bring any employment related claims against their former employer in relation to their employment and its termination.
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