Settlement Agreements Solicitors for Employers

A settlement agreement is a legally binding contract between an employer and an employee, often used to resolve disputes or potential claims. It is vital for employers as it helps minimise the risk of litigation, protects business interests, and ensures a swift and mutually agreeable resolution to employment-related issues.

When drafting a settlement agreement for your employee, it should cover the essential components to protect your business and provide a comprehensive resolution. Typically, a settlement agreement includes the following:

• Termination date - The date which marks the end of your employee’s employment with you should be a prominent part of the settlement agreement.
• Compensation and financial settlement - The agreement should outline the payment of a lump sum as compensation to the employee. Additionally, it may address other financial aspects such as pension arrangements, bonuses, holiday entitlements, and company car arrangements, if applicable.
• References and communication - You should consider including provisions regarding an agreed reference for the employee, which can be important for their future employment prospects and can serve as a useful negotiating tool. You may include an agreed announcement to inform your staff and customers about the employee’s departure in a manner that maintains professionalism and protects your company’s reputation.
• Confidentiality clauses - Within the agreement you should set out how you and your employee will keep the detail within the agreement confidential.
• Restrictive Covenants - To safeguard your business from potential competition after the employee leaves, it is advisable to include restrictive covenants. These clauses restrict the employee’s activities post-termination, such as working for a competitor or soliciting clients or employees from your organisation. Receiving advice on these as a separate matter is important to ensure they would be enforceable should your employee act against the restrictions in the future.
• Independent legal advice - For a settlement agreement to be legally binding, it is essential that your employee seeks advice from a qualified solicitor or other approved professional. This requirement ensures that they fully understand the terms and implications of the agreement. Usually, a certificate confirming the advice received is attached to the agreement.

The first step comes before you have even offered your employee the settlement agreement.  You should seek advice from an experienced employment lawyer about the situation at hand in order to understand your options, the legal implications and consequences.  We can work with you based on your unique circumstances, identify potential risks, and then devise an effective strategy to protect your interests while ensuring you remain on the right side of employment law.

Once agreed that a settlement agreement is the right path, we will draft the settlement agreement to be passed to your employee’s legal advisors.  We will present a fair and favourable offer and, should this be rejected or counter-offered, we will negotiate, keeping you appraised of the conversations along the way to ensure we remain aligned with your goals.

In the unfortunate event that a dispute arises despite having a settlement agreement in place, or a settlement agreement is not signed and a Tribunal claim arises, our experienced litigators are ready to provide strong representation and support throughout the legal process.

The costs associated with a settlement agreement can vary depending on your situation. When considering the financial implications for your business, there are three main areas to consider:

1. Compensation for the employee - The amount you will need to pay to your employee as part of the settlement agreement will depend on several factors, including:
   1. their length of service,
   2. the reason for terminating their employment,
   3. their ability to secure alternative employment quickly,
   4. their current salary and benefits package, and
   5. the perceived risk of them pursuing matters to an Employment Tribunal if they were to be dismissed without an agreement.

We can provide guidance on determining an appropriate offer and assess the potential outcome of any Employment Tribunal proceedings, ensuring a fair deal for the termination package.

2. Legal fees for the employee - As it is a legal requirement for your employee to seek independent legal advice before entering into a settlement agreement, most employers contribute to the cost of obtaining that advice. Typically, this contribution ranges from £300 - £500 plus VAT. However, the appropriate budget may vary depending on factors such as the seniority of the departing employee, complexities involved in the agreement such as share options, and significant litigation risks.
3. Legal fees for advice received - While it is not mandatory for you to seek legal advice, settlement agreements and the subsequent negotiations can be time consuming and, when not conducted properly, could open you up to more employment claims. Therefore, there are costs associated with the legal advice and services we provide. Our fees are based on an hourly rate, reflecting the time spent on your case. We offer transparent pricing structures and can provide a more accurate assessment during our initial consultation.

Settlement agreements are typically finalised within a relatively short timeframe. If both you and your employee are satisfied with the terms and the offered compensation, we can usually complete the necessary work within a matter of days. However, if negotiations are involved, the duration will depend on how promptly each party responds. In most cases, we anticipate that agreements can be concluded within a couple of weeks.

The ACAS Code of Practice emphasises the importance of giving employees a reasonable period of time to consider the proposal. The length of this period will depend on the specific circumstances of the case. As a general guideline, a minimum period of 10 calendar days should be allowed for your employee to consider the formal written terms of the settlement agreement and to seek independent advice, unless both parties agree to a different timeframe.