How to use a settlement agreement to resolve an employment issue

Updating author: Catherine Rawsthorne, DAC Beachcroft
Original author: Claire Birkinshaw

Summary

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• Be aware that a settlement agreement is a legally binding agreement made between an employer and an employee under which the employee agrees not to pursue a particular claim that they have in relation to their employment or its termination.
• Take into account that there are a number of important legal formalities that must be complied with for a settlement agreement to be valid.
• Be aware of the issues involved in settling more than one complaint.
• Be aware that you can use a simple waiver and release form to settle contractual claims, but that a settlement agreement will be necessary for statutory claims.
• Understand the rules on the admissibility of details of pre-termination negotiations as evidence in employment tribunal claims.
• During negotiations, ensure that the terms of the settlement agreement are expressed to be not binding until the agreement is signed by all parties.
• Use the settlement agreement to cover other important issues such as restrictive covenants and confidentiality obligations.
• Do not assume that all payments made under settlement agreements are tax-free.