Settlement Agreements

A settlement agreement, previously known as a compromise agreement, is a legally binding contract between an employer and an employee that typically brings the employment relationship to an end or resolves a dispute. It outlines the terms and conditions agreed upon by both parties, often including financial compensation and other provisions.

Whilst there is no obligation to give a formal contract of employment, all employees or workers are entitled to be provided with a written statement of employment particulars. This document should set out the core terms governing the relationship including but not limited to hours of work, rate of pay, holiday entitlement, place of work and length of the job if fixed term. This should be provided to you on day one of your employment/contractual arrangement.

A settlement agreement should include details such as the termination date, the amount of any financial compensation being offered, any post-employment restrictions or obligations, confidentiality clauses, and a clear statement of the claims being settled.

Yes, it is a legal requirement for the employee to receive independent legal advice from a qualified solicitor before signing the settlement agreement. This ensures that the employee fully understands the terms and consequences of the agreement. As such it is usual practice for an employer to make a contribution towards the employee’s legal costs.

If a settlement agreement is not drafted properly or the employee’s rights are not protected, there is a risk that the agreement may not be legally binding. This could lead to potential claims or disputes resurfacing, resulting in additional costs and legal complications.

A MARS agreement or mutually agreed resignation scheme agreement is another name for a settlement agreement. It is a type of agreement commonly used by NHS trusts and the education sector to enable employees to leave their employment voluntarily to help manage cost reductions in periods of change. The key features of a MARS agreement will be an agreed termination date, termination arrangements and a severance payment.

A MARS agreement is still a form of a settlement agreement, and therefore, employees are required to take independent legal advice before they sign the agreement. The MARS agreement will typically include a legal fee contribution, which should be of a level to cover the necessary advice on the agreement.

Yes. In order for the settlement agreement to be binding there are certain legal formalities to comply with. One of these is that you need to take independent legal advice on the terms and effect of the settlement agreement.

Your employer should pay a contribution towards your legal fees, which will be stipulated in your settlement agreement. The contribution should be at a level where it covers all or most of your legal fees, but this will depend on each particular case, and it is important to note that this is only a contribution. Ultimately, you will be responsible for any shortfall, however, as part of any negotiations you can ask for the contribution to be increased.

There will be a clause in your settlement agreement stating that you must keep the terms and circumstances surrounding your departure and the settlement agreement confidential. This means you cannot disclose this information to anyone, save for disclosure to HMRC as required by law, your professional legal advisers and usually your spouse or civil partner.

Generally speaking yes, however the grounds for doing so will generally be dependant on each individual situation and our specialised lawyers will be able to advise you on this.