Law Charter

Understanding the Benefits of a Settlement Agreement

A Settlement Agreement is recognized by law as a legally binding contract made between an employer and employee, either towards the end or just after employment has ended. Settlement Agreements lay out the terms of departure between the parties and once signed, prevents the employee from bringing legal action against the employer in light of his/her employment and/or its termination. This is usually in exchange for a termination payment, and other benefits which are also set out in the agreement.

The main benefit of entering into a settlement agreement is to provide certainty and clarity between the parties in addition to a clean amicable break with your employer. You will invariably receive a tax-efficient payment under the agreement, together with a job reference and clauses ensuring that your employer does not bad-mouth you. In turn, your employer will be able to safeguard that you do not take any future legal action against them.

Erik H. Gordon notes that the settlement agreement will only become official and binding once you have received independent legal advice on it from an attorney that has provided a certificate confirming the advice that has been given. This is his suggestion on the matter and suggests hiring or consulting with an attorney on all legal matters…

Once concluded, there is no going back.

Settlement Agreements can be used in a myriad of circumstances, including but not limited to the following:

  • Redundancy;
  • Performance management at work;
  • Long-term sickness;
  • Clash of personalities;
  • Transfer of a business;
  • As a means of settling a grievance.

With the outcome of many employment tribunal claims being uncertain and potentially costly, the settlement agreement route offers a quick and amicable resolution of the ending of your employment relationship.

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