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Settlement agreements

Settlement Agreements came into effect on 29 July 2013.

To support their introduction, Acas has produced a statutory pdf  Code of Practice on settlement agreements [1Mb] which explains what settlement agreements are and provides guidance on the new law which concerns the confidentiality of settlement agreement negotiations.

In addition to the code Acas has also produced a non-statutory pdf  Settlement Agreements: A guide [523kb] which provides more detailed guidance on the use of Settlement Agreements.

Key points about settlement agreements

  • Settlement agreements are legally binding contracts that waive an individual's rights to make a claim covered by the agreement to an employment tribunal or court.
  • The agreement must be in writing.
  • They usually include some form of payment to the employee and may often include a reference.
  • They are voluntary.
  • They can be offered at any stage of an employment relationship.

Settlement agreements are legally binding contracts which can be used to end an employment relationship on agreed terms. They can also be used to resolve an ongoing workplace dispute, for example, a dispute over holiday pay. These agreements can be proposed by either an employer or an employee, although it will normally be the employer.

Once a valid settlement agreement has been signed, the employee will be unable to make an employment tribunal claim about any type of claim which is listed on the agreement.

Where the employer and employee are unable to reach an agreement, the settlement discussions cannot usually be referred to as evidence in any subsequent unfair dismissal claim. Where the settlement discussions are held to resolve an existing dispute between the parties they cannot be used as evidence in any type of claim.

Reaching a settlement agreement

For the settlement agreement to be legally binding the following conditions must be met.

  • The agreement must be in writing.
  • The agreement must relate to a particular complaint or proceedings.
  • The employee must have received advice from a relevant independent adviser, such as a lawyer or a certified and authorised member of a trade union.
  • The independent adviser must have a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from the advice.
  • The agreement must identify the adviser.
  • The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.

Employees should be given a reasonable amount of time to consider the proposed conditions of the agreement; the Acas Code of Practice on settlement agreements specifies a minimum of 10 calendar days unless the parties agree otherwise.

Settlement agreements are voluntary and parties do not have to agree to them or enter into discussion about them. There can be a process of negotiation during which both sides make proposals and counter proposals until an agreement is reached or both parties decide no agreement can be reached.

If a settlement agreement is not reached and depending on the nature of the dispute or problem, resolution may be pursued through a performance management, disciplinary or grievance process, or mediation whichever is the most appropriate. It is important that employers follow a fair process and use the Acas Code of Practice on Discipline and Grievance procedures because, if the employee is dismissed, failure to do so may be grounds for a claim of unfair dismissal.

Settlement agreement meeting

Although there is no statutory right for the employee to be accompanied at any meeting to discuss the agreement, an employee may want to involve someone to help them, such as a work colleague or a trade union representative. Employers should, as a matter of good practice, allow an employee to be accompanied when meetings are held as this can often help progress settlement discussions.

Ending the employment relationship

When the settlement agreement includes an agreement to end the employment relationship, then employment can end with the required notice, or the timing can be agreed as part of the settlement agreement.

Details of payment and the timing should be included in the agreement; any payments should be made as soon as practicable after the agreement has been reached.

Settlement agreement templates

Having the correct draft letters and forms can save you time, and help you manage information quickly and easily. The following templates are free to use and are here to help you draw up a settlement agreement and produce a settlement agreement offer letter.

Call the Acas helpline

The Acas Helpline (0300 123 1100) can provide general advice on settlement agreements and what they may mean for your organisations' employment relations practices. The Helpline is unable to give advice on whether or not you should agree to a settlement agreement.

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