Advantages and Disadvantages of Settlement Agreements

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A settlement agreement is a legally binding contract between employer and employee which can be used to bring any type of workplace dispute, including a redundancy situation or employment claim to an end on mutually agreed terms. A settlement agreement can be proposed by either the employer or the employee but cannot include claims for personal injury, disputes over pension rights or reaches of the settlement agreement itself.

So what are the advantages? A settlement agreement can:
  • offer both employer and employee a clean break situation
  • avoid the lengthy time and cost involved in dealing with a protracted formal complaint or tribunal claim
  • provide a quick and dignified conclusion to an employment relationship that has irretrievably broken down
  • be a sensible commercial option
But, there are always the downsides to be considered and these are:
  • the cost of drawing up a legal agreement and the legal costs you agree to cover on behalf of the employee as part of the agreement
  • the cost of compensation payment offered to the employee
  • the impact on the Company and employee relations if too frequently used in the business.


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