In employment law, a settlement agreement is a binding contract between an employer and employee. It usually involves an employee agreeing to sign away their right to bring any claims against their employer in an employment tribunal or other court, in return for a financial payment.

The issue being resolved (or ‘settled’ in legal jargon) by the settlement agreement may have arisen during their employment, or because of the termination of their employment.

An employer and employee signing a settlement agreement

When do the settlement negotiations take place?

This will vary from case to case. Some settlement negotiations may take place before an employee has left their job (i.e. a ‘negotiated exit’). Sometimes negotiations may occur at the tribunal room door.

When a case goes to tribunal or court there are many formalities to comply with, such as filing a defence and organising witness statements and evidence. This is why taking a case all the way to tribunal can be expensive.

From the outset, a good legal team will be thinking about the best way to start negotiations with a view to settling the case.

They will need to know the strength of the other side’s case before they can properly advise you as to the most appropriate settlement. This can also depend on the willingness of the other party to negotiate.

The negotiations to settle a case may start straight away, but sometimes they do not start until later. Negotiations can happen quickly or take place over many weeks or months.

The settlement negotiations

Your legal team should advise you about the likely outcome of the proceedings. They will also suggest the best way to negotiate a settlement. This will include advising you as to the best offer of settlement you should make, and whether you should accept an offer made by the other party.

If your lawyer is advising you to agree an offer that you do not think is good enough, ask them to explain the reasoning behind it.

Negotiations can sometimes be complex, with many factors to consider. An element of compromise needs to be adopted by both parties. However certain you may be about the outcome, there is always an element of risk involved in legal proceedings, and costs to consider.

Apart from the financial side of the claim (such as working out lost earnings, etc.) there may be issues to agree about confidentiality and non-disclosure of information.

Lawyers for two parties negotiating a settlement agreement

Accepting a settlement offer

Once you understand the offer that has been made, you will need to decide whether to accept. In some cases, you may need a little time to consider this, but your legal team are there to help and advise you.

That said, your legal team can only advise you to accept. They cannot force you to accept an offer you are not happy with. However, they should explain all the implications of not accepting.

Changing your mind

Once you have agreed an offer of settlement, the lawyers will draw up a settlement agreement to be signed by both parties.

Before it becomes binding, the agreement must meet a few legal requirements:

  • It must be in writing.
  • It must relate to and specify a particular complaint or proceedings.
  • The employee must have received advice from a relevant independent advisor, such as a lawyer or an authorised member of a trade union.
  • It must identify the advisor.
  • It must state that the applicable statutory conditions regulating the settlement agreement have been met.

Solicitor advising an employee whether to accept a settlement offer

You will need to sign the agreement. Until the agreement has been signed, you can change your mind, although this can have serious implications, e.g. if you do not agree to a reasonable settlement offer and legal costs are incurred by the other side, they can sometimes try to recover those costs if the final award turns out to be less than the amount offered.

Once you have signed the document, it is seen as full and final settlement of the claims. The agreement will then be legally binding and cannot be revoked.

Early advice

If you find yourself involved in legal proceedings, it’s important to take professional advice at the earliest opportunity.

If you would like to discuss a claim, please get in touch. Our team of experienced employment solicitors are always on-hand to provide their legal expertise and knowledge.

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