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Ashby de la Zouch

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Do you need a settlement agreement?

We’ve seen a lot of change in the job market over the past couple of years. Employees have been increasingly willing to leave a job behind if they’re unhappy and we’ve all had to adapt to new ways of working. If a dispute has arisen in your workplace, a settlement agreement could be the best way forward.


What’s a settlement agreement?

A settlement agreement is a legally binding document that’s created to end a dispute between employer and employee without the need to go to an employment tribunal. They’re often used when an employee is leaving work, but they can also be useful when there’s another kind of dispute.


How do we agree on terms?

The terms of your agreement need to be agreed upon between employer and employee. This could be a simple process. If your employment is ending your employer could make you a financial settlement offer. If you accept it the settlement agreement will set out what you’ve agreed. However, it can be more complicated than that.

The settlement agreement document will need to set out what the dispute was and what you’ve agreed. Sometimes, a settlement agreement can be offered by an employer if they’ve come across something that could lead to a tribunal claim in the future.

Does it need to be a financial settlement?

Settlement agreements will often involve payment, particularly if it’s dealing with the end of your employment. In this type of settlement, the agreement needs to confirm how much is being paid, whether it’s being paid in instalments and whether any tax needs to be deducted.


Equally, you don’t have to have a financial settlement. The agreement might have been needed because of something that needed to change for you to stay in your job. There might also be other parts of a financial agreement that aren’t about money, for example giving you a reference so you can get a new job.


Do I need a solicitor?

There are various statutory requirements about the terms that must be in a settlement agreement. It’s important to have the agreement checked by a solicitor to make sure it meets all those requirements. If you’re an employee you must have legal advice otherwise the agreement won’t be legally binding. Your employer is also legally required to contribute to your independent professional advice from a solicitor.

As an employer, it’s also a good idea to get your own legal advice to make sure you’ve covered everything. The tax rules around settlement agreements can be complex. You may also want to discuss the possibility of a claim going to the employment tribunal and what the outcome of that might be when you’re deciding what offer to make.



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