What is a settlement agreement?
Settlement agreements in Scotland are a legally binding agreement between an employer and employee. It usually sets out the terms of an agreed exit of an employee from their employment and can sometimes be referred to as an ‘exit agreement’. It will typically include an amount of compensation payable to an employee in exchange for the employee waiving their rights to bring certain claims against their employer.
To be legally enforceable, settlement agreements must be in writing. It must be clear what the employee is giving up and what they are receiving in return. The employee must receive independent legal advice on the terms of the agreement from a qualified solicitor
What are the benefits of settlement agreements?
Settlement agreements are often used to avoid litigation. They can work both ways: an employer can avoid the risk of a potential risky, expensive and time-consuming litigation, and an employee can receive guaranteed compensation and be able to draw a line under what are often difficult and distressing circumstances.
Employers will also commonly use settlement agreements as an alternative to a formal redundancy process, a lengthy capability process or potentially risky disciplinary process. There may be a workplace dispute that both parties wish to resolve.
Negotiating a fair agreement
Employees should carefully consider an offer. It may be that there is scope to negotiate for better terms such as an increased sum of compensation, removal of certain restrictions within the agreement, or an agreed favourable reference. There are a whole range of circumstances in which settlement agreements can be a useful tool for both employers and employees. The most important thing is to understand the legal requirements of a settlement agreement and how it effects both side’s rights.
The importance of independent legal advice
Employees must seek independent legal advice before signing a settlement agreement. If they do not, there will be no binding agreement. The employee must be advised on the terms of the agreement, their rights, and whether the compensation offered is fair. The advice must be given by a solicitor or adviser who is covered by professional indemnity insurance. The settlement agreement will identify the adviser and confirm that the necessary advice has been given. The employer will generally contribute towards the employee seeking advice on the agreement.
An employee should consider taking advice on the reasonableness of a settlement offer being made in the specific circumstances of their case. It is vital that an employee has received relevant advice to assess whether an offer is ‘good’ or ‘bad’. It may also be appropriate to instruct a legal representative to carry out further negotiations with an employer. The negotiation process tends to take place before a settlement agreement is drafted in a finalised form, and before advice is given on the final terms.
Call Us Today
Settlement agreements in Scotland have always been a useful tool for both employers and employees to resolve disputes. Our experienced Employment Team can provide you with clear and practical expert advice on settlements. Our team are also are fully covered to advise you on the terms of your settlement agreement in Scotland and across the UK. We can accommodate advice by telephone, video meetings or in-person at our Glasgow offices. Contact us today to arrange an initial call.
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