Today, 29 July 2013, settlement agreements come into force and replace compromise agreements. To accompany this new document ACAS have produced a code of practice on settlement agreements which will help employers, employees and their representatives understand the negotiation of settlements before any termination of employment. The code of practice also includes some template letters for employers to use and adapt to their own purposes.
The settlement agreement seeks to settle employment disputes. It is a legally binding written contract that will waive an employee’s rights to make a claim covered by the agreement in an employment tribunal or court. The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.
The employee will receive a sum of money waiving their rights to go to an employment tribunal. The negotiations that take place prior to the settlement agreement being signed should be “without prejudice”. That means that the discussion surrounding the offer and terms of the agreement can not be used as evidence in legal proceedings. A settlement agreement is voluntary and parties do not have to agree to it. They can be used at any part of the employment relationship.
Whilst not a statutory requirement it would be a good idea to allow an employee to be accompanied by a trade union representative or work colleague.
There will be a minimum of ten working days for the parties to consider the terms of the settlement agreement.
Employees will need to seek independent legal advice so they can understand the rights they will be waiving by signing a settlement agreement. The legal advice can be sought from a solicitor (not involved in the settlement negotiations), an authorized member of a trade union or an advice centre worker who has written confirmation from the centre that they are fully competent to give such legal advice. The independent legal advisor should have a current contract of insurance or professional indemnity covering the risk of a claim from the employee in respect of loss arising from the advice. The settlement agreement must identify the advisor.
If resolution can not be found then the employer must resolve the problem using an appropriate procedure such as disciplinary, grievance or capability following a fair process.