In light of recent case law, Stephen Ravenscroft and Sarah Taylor discuss the importance of using clear wording when drawing up a settlement agreement.
Settlement agreements are a very useful tool for an employer. They normally draw a line under the employment relationship and provide certainty that an employee will not bring any employment- related claims. Such an agreement is often used to reach a full and final settlement of any claims which the employee has or may have arising out of the employment and its termination, subject to certain exceptions such as claims for personal injury or accrued pension rights.
While parties may agree that a settlement agreement will also cover any future claims which an employee does not and could not know about, to do so effectively the terms of the agreement must be absolutely plain and unequivocal. The agreement will also set out what the employee can and cannot do after termination of employment. With every word likely to be scrutinised in the event of a future dispute, the stakes are high and employers and their advisers must be cautious and thorough when drafting such agreements.
Employers must remember that there is no 'standard' settlement agreement. Although an employer may have used the same document for years, employment laws and best practice change over time, and one size rarely fits all. It is therefore vital to make sure that a settlement agreement is tailored to the specific circumstances of an employee's departure.
Not all claims can be settled by means of a settlement agreement or COT3. For example, claims for failure to inform and consult with appropriate representatives on collective redundancies and under the Transfer of Undertakings (Protection of Employment) Regulations 2006 cannot be settled via a settlement agreement (although Acas can conciliate in relation to such claims). Nor is it possible to exclude rights relating to statutory maternity pay (SMP), statutory paternity pay, statutory adoption pay or statutory shared parental pay, as was recently confirmed by the First-tier Tribunal (Tax Chamber) in Campus Living Villages UK Ltd v Revenue and Customs Commissioners .
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This article was published in a slightly different form in the March 2017 issue of Employment Law Journal.
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