Settlement Agreements: A Checklist for Employers and Employees03 Dec 2020
Many employers and employees are currently negotiating terms with a view to entering into settlement agreements relating to the termination of employment. We want to provide you with a checklist for employers and employees to help better understand your rights.
Typically, an employer will prepare a draft settlement agreement for an employee to review in a situation where employment has already terminated or will be terminated imminently. The settlement agreement will often be stated to be without prejudice and subject to contract until signed and dated by both parties.
To be valid, various statutory conditions must be satisfied including that:
- the settlement agreement must be in writing;
- it must relate to a particular complaint or proceedings (certain claims cannot be compromised in a settlement agreement);
- the employee must have received legal advice from a relevant independent adviser (who must be identified in the settlement agreement) as to the terms and effect of the settlement agreement and the effect of it on the employee’s rights before an employment tribunal;
- the independent legal adviser who has advised the employee in respect of the settlement agreement must have a current contract of insurance, or professional indemnity insurance which covers the risk of a claims against them by the employee in respect of their legal advice;
- the settlement agreement must state that the statutory conditions which regulate settlement agreements have been satisfied.
The main basis for any settlement agreement will usually be an agreement by an employer to pay an employee a termination payment for an amount that has been negotiated between the parties in exchange for that employee agreeing to waive certain stipulated claims they may have against the employer arising under statute, under the contract of employment or under common law and for the employee not to issue any tribunal proceedings against the employer or to withdraw any proceedings that have already been issued.
An employer and employee can negotiate what other provisions they might want to include in a settlement agreement but below is a non-exhaustive checklist of issues which we think employers and employees might want to consider before finalising the terms of any settlement agreement:
(i) what specific claims the employee has or may have against the employer;
(ii) whether it will be necessary for the employee to work out their contractual notice period or whether they will be paid in lieu of notice;
(iii) if the employee is required to work out their notice period, what duties will they have to carry out and/or whether they will be placed on garden leave for any of their notice period;
(iv) what entitlement the employee has to be paid for: salary and benefits up to the termination date including any accrued but untaken holiday, commission or bonuses; any applicable redundancy pay; any compensation for loss of benefits; any compensation for loss of employment; re-imbursement of any expenses;
(v) what pension entitlements and share/investment entitlements the employee may have;
(vi) whether the employer will pay an agreed contribution towards the legal fees for the employee to take independent legal advice;
(vii) whether the employer will pay towards the employee receiving outplacement counselling;
(viii) return of company/employee property;
(ix) repayment of any loans;
(x) confidentiality provisions relating to the employer’s confidential information and the existence and terms of the settlement agreement;
(xi) whether the employer will provide an agreed reference;
(xii) whether the employee will continue to be bound by any post-termination restrictions contained in their contract of employment or by any new ones
(xiii) the inclusion of a ‘no bad-mouthing’ provision and reference to what will be said publicly or announced about the termination of employment;
(xiv) resignation of any directorships or positions connected with the employment;
(xv) clawback and indemnity provisions in relation to the termination payment in the event of breach of the settlement agreement;
(xvi) indemnity provisions in relation to the payment of tax.
(xvii) the inclusion of any suitable warranties.
(xviii) whether to include an ‘entire agreement’ clause;
(xix) specifying the governing law and jurisdiction.
This blog was prepared on 19 August 2020. It is not intended to be advice and should not be relied upon as such.
If you require any specific advice or assistance about employment law or any of the issues referred to in this blog, please contact our employment law solicitor, Yvonne Addy, by telephone on 0207 486 5131 or by email to email@example.com or make an online enquiry here.