In this article, Employment Law Solicitor Chris Hadrill examines why employees need to obtain independent legal advice from a suitably qualified person (such as a solicitor or barrister) if they’ve been offered a settlement agreement.
What is a settlement agreement?
A settlement agreement is a contract regulated by statute which allows for potential or existing legal proceedings (whether these are in the employment tribunal, county court, or high court) to be settled. If an employee signs a settlement agreement this normally means that they’re prevented from bringing any claims in the tribunal or court, whether the claim is for breach of contract, unfair dismissal, discrimination, failure to pay wages, or any other form of claim. Under the agreement, the employee will, however, be provided with some form of benefit for agreeing to waive their rights to bring such claims, with such benefit normally involving some form of monetary sum and the provision of a reference.
Why should employees take legal advice on their settlement agreement?
There are a number of reasons why employees should take specialist legal advice from an independent legal adviser:
- There is a statutory legal obligation that the employee must receive legal advice before they sign their agreement
- There is a statutory legal obligation that a specialist legal adviser (such as a solicitor) must sign the settlement agreement
- In any event, it is highly recommended that the employee take specialist legal advice on the terms and effect of their agreement
- A specialist legal adviser may be able to negotiate the value of your settlement agreement upward
Firstly, a settlement agreement is not valid and enforceable under s.203(3) Employment Rights Act 1996 unless the employee takes legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal. If the employee therefore does not seek legal advice or is forced to sign the agreement without being allowed to seek legal advice then the agreement is unenforceable – this is of no use to the employer or the employee as the employer can neither force the employee to waive their right to make particular claims in the tribunal or courts, nor can the employee seek to enforce any sum of money that they are owed (or any other benefit) under the agreement.
Secondly, there is generally an “adviser’s certificate” in settlement agreements which stipulates that the settlement agreement does not become binding until it has been signed by the independent legal adviser (as well as by the employee). An employer will generally therefore not accept a settlement agreement that has not been signed by the independent legal adviser as there is a risk that the agreement may be unenforceable.
Thirdly, it is highly recommended that – in any event – employees take specialist legal advice on the terms and effect of their settlement agreement, as they could be under-settling their potential claims and/or may not be aware of potentially adverse terms in their agreement (such as restrictive covenants, for example).
Finally, the employee’s interests may be best served by obtaining specialist legal advice on their settlement agreement as their solicitor may be able to negotiate the value of the payment upwards.
What is the effect if employees don’t take legal advice on their settlement agreement?
As above, a settlement agreement is potentially invalid and unenforceable if the employee does not seek legal advice from an independent legal adviser. It is therefore in both parties’ interests to arrange for the employee to obtain independent legal advice before they sign their agreement – and the employer will normally pay for the whole of or part of this!