With the second lockdown now in place and wide-ranging anticipated redundancies ahead across job sectors, many businesses will be making tough decisions about their business needs and workforce in the current climate over the next few weeks. The second lockdown entails the compulsory closure of many stores on the high street and hospitality venues. This may lead to an increase in employees’ roles being terminated, by reason of redundancy for example, and settlement agreements being offered by employers for any live or potential legal disputes which may arise from the same.
A settlement agreement is a legally binding contract between an employer and employee. It settles any claims the employee might have against the employer. A settlement agreement often leads to or follows a person’s employment being terminated (although it can be used to settle claims where the employment is ongoing too).
A settlement will be on mutually agreed terms and will normally include an enhanced severance payment by the employer, in return for the employee waiving their statutory rights and agreeing not to pursue any Employment Tribunal or Court claims arising out of their employment or its termination. There may be a period of negotiation and discussion between the employer and employee or their legal advisers before a mutually beneficial compromise is reached.
The termination package in a settlement agreement will often include, among other things, notice pay and holiday pay, contractual benefits, and any redundancy pay/any enhanced compensation for loss of employment (which can be paid tax free up to £30,000). The agreement may contain provisions regarding confidentiality, the return of employer property and an agreed reference, among other non-financial rights and obligations.
A COT3 Agreement is another way an employee and employer can settle actual or potential Employment Tribunal claims that an employee may have and is usually reached with the assistance of an ACAS conciliator. A COT3 is a form used to record the terms of settlement agreed following conciliation and once agreed, forms a legally binding contract between the parties.
Settlement agreements can be an effective way of resolving an employment dispute on agreed terms as they can provide certainty and finality for both sides. They are often concluded, and resolve disputes (or potential disputes) between the parties, without the need for legal action. There are, however, certain rights which cannot be compromised and excluded via a settlement agreement, such as rights which an employee has in respect of their accrued pension rights under a pension scheme and personal injury claims which they are unaware of at the time of the agreement.
For a settlement agreement to be legally valid, there are certain statutory requirements which must be complied with. For instance, the agreement must be in writing, it must relate to the particular proceedings or claim in issue and it must identify a named independent legal adviser that has advised the employee on the terms and effect of the agreement. If the settlement agreement fails to meet any of the legal requirements set out in statute, then the agreement will be void for statutory claims and the employee will still be able to pursue their claims in the Employment Tribunal. It is therefore crucial that both the employees and employers understand the necessary legal requirements which must be met and that employees obtain independent legal advice on the agreement, to ensure that both parties interests and rights are protected.
Our experienced Employment Law Team can provide advice on settlement agreements to both employers and employees. If your employer has presented you with a settlement agreement, our solicitors can provide tailored advice on your legal position and employment rights, the terms and effect of the agreement offered and negotiate the terms of the agreement with your employer on your behalf where possible. Our team are also able to provide detailed advice and assistance to employers on how to draft bespoke settlement agreements which provide certainty and allow your business interests to be protected, and can advise on how to present terms to employees. For both sides, it is important to take professional legal advice.