Firstly, what is a settlement agreement? Well it is a legally binding agreement usually between an employee and their employer whereby the employer offers the employee a lump sum in excess of their normal entitlement to compromise any employment claims they may have. It must meet certain legal requirements to be a valid settlement agreement one of which is that is must be in writing. Settlement agreements were historically called compromise agreements.
Employers use these sort of agreements simply as it gives them peace of mind. Whilst they can have a financial cost this is often outweighed in the knowledge that any claims the employee has are settled. They are an alternative to the possibility of facing an Employment Tribunal which can be expensive and time consuming for the employer.
A well drafted agreement can compromise all the claims an employee may have and depending on the merits of any claim the sum an employer would need to pay to “buy out” the employee may not be that high. In some cases, employers use settlement agreements for any potential dismissals and many choose to use them before any dismissal takes place. It depends on the employer.
The employee must take legal advice on the settlement agreement and seeking specialist employment law advice can reap benefits.