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16-06-2014

A settlement agreement is a written agreement between an employer and an employee, whereby an employee agrees to waive certain employment claims, usually in return for a payment of money. They are frequently used in redundancy situations or to bring an employee’s employment to an end quickly as part of a negotiated exit. Rarely, they can also be entered into where there has been a dispute, but employment is continuing.

Settlement agreements are very common, but often contain errors, which if challenged might render the agreement insufficient to protect the employer from claims.  In the case of  Lunt v Merseyside [1999] IRLR 458 A sex discrimination claim brought by Mrs Lunt survived the settlement agreement as the agreement did not comply with the technical requirement in section 77(4A)(f) of the Sex Discrimination Act that it should "state that the conditions regulating compromise contracts under this Act are satisfied", even though by making the payment,  the employer was intending to settle all of Mrs Lunt’s claims and potential claims.

For a settlement agreement to be legally binding and to prevent an employee bringing claims in an employment tribunal:

  • It must be in writing.
  • It must relate to a particular complaint or legal proceeding.
  • The employee has to receive independent legal advice from a qualified lawyer, a certified union official, or an authorised advice centre worker who is insured and who is also identified in the agreement.
  • The agreement must set out what statutory provisions are covered.
  • The statement must state that the applicable statutory conditions regulating settlement agreements have been satisfied.

It is also worth remembering that some claims cannot be settled by a settlement agreement, these include:

  • Certain TUPE Claims
  • Pension claims
  • Personal Injury Claims

As well as dealing with a waiver of claims it is common to also include:

  • A confidentiality agreement.
  • A clause dealing with legal fees.
  • A non disparagement clause.
  • An agreed form of reference.
  • Restrictions on the employee taking clients, staff or competing.
  • Terms dealing with any benefits, share options or SAYE.
  • Repayment of any excess holiday pay.
  • Clawback provisions in the event the employee breaches the terms of the agreement.
  • A tax indemnity to the benefit of the employer.

A model settlement agreement can be obtained by emailing hrprotect@moonbeever.com

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