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What is a settlement agreement?
A settlement agreement settles all existing and potential employment disputes. They frequently arise where enhanced termination payments are proposed or to provide a binding agreement in respect of any disputes which have arisen.
Settlement Agreements vary in length but essentially record the terms and payments to be to be provided by the employer in full and final settlement of the employee agreeing to waive or settle their claims.
For a settlement agreement to be valid the following conditions must be met:
- The agreement must be in writing
- The agreement must relate to specific claims
- The employee must have received independent legal advice on its terms and their ability to pursue any rights
- The adviser must be suitably qualified
- The agreement must state that the conditions in section 203(3) of ERA 1996 (or the relevant statute) are complied with
What does a settlement agreement contain?
Settlement agreements usually include provisions such as:
- Payment and benefit provisions (before and after the termination date)
- Confidentiality requirements
- Restrictive covenants (e.g. non-compete clauses)
- Return of company property or deletion of data
- Tax indemnities
- Reference and internal announcement provisions
- Legal fee contribution
Drafting of these agreements need to be carefully considered.
We will advise you on the best way to propose a settlement; how to structure the payments; the tax benefits/risks and draft the agreement to meet your business needs. We can also negotiate in your behalf.
We also have easy to follow guidance on this and a range of topics here.