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Do I need legal advice before signing a settlement agreement?

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If you have been dismissed or made redundant, you may be presented with a settlement agreement from your employer.  These agreements are increasingly being used by employers in these situations as by doing so you are waiving your right to bring a claim against them in the future.  Seeking legal advice is an important step in moving forward following receipt of a settlement agreement, and our Employment team explain why here.

What is a settlement agreement?

A settlement agreement is a contract between an individual employee and their employer. The purpose of the agreement is usually to settle an ongoing dispute or multiple disputes. In most instances, signing a settlement agreement will have the effect of terminating the employee’s employment.

The terms of a settlement agreement will state that you, as the employee, will receive a payment of a set amount. As a consequence of receiving this payment, you will waive your rights to bring a claim in an Employment Tribunal against your employer.

Before you sign a settlement agreement, you must seek independent legal advice on the effect of the agreement. This is a statutory requirement and is set out in section 203(3) Employment Rights Act 1996. This section states that the legal adviser must be named in the agreement and have relevant insurance in place with regard to the advice they give.

For the terms of a settlement agreement to be effective, you must be informed by your adviser about the specific terms and effect of the settlement agreement, in particular its effect on your ability to bring a Tribunal claim under the relevant legislation. Your employer would usually contribute towards the legal fees for you to receive this advice, which are normally around £250 +VAT.  

A settlement agreement is a legally binding contract and as such your legal adviser will seek to ensure that you are signing the agreement knowing the effect of your signature. During this time, they will also advise you, before you sign, as to any potential claims and the merits of such claims you may have if they were to bring a claim in the Employment Tribunal.

You should remember that an agreement does not have to be signed. You should be given reasonable time by your employer to consider the terms, to take the legal advice necessary and make an informed decision based on that advice as to the next steps you can take.

If you have been given a settlement agreement by your employer to sign, you can contact us today on 023 8071 7717 or email employment@warnergoodman.co.uk to seek the appropriate legal advice.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.