Settlement Agreements

What are they?

In employment law, Settlement Agreements are often used to resolve disputes but can often be used in the absence of a dispute but where a company wants to pay an employee an enhanced sum of money (for instance as a "golden handshake").   

What do they do?

The Agreement sets out what the employee will receive in return for them agreeing not to take any action against the company. The employee will often receive money but they may just get a reference or get to retain certain benefits for a period of time. Confidentiality surrounding the Agreement and its terms is often a key clause. After all, employers don't want every employee asking them for a pay out.

What happens if there is a breach?

There will be a clause in the Settlement Agreement which states that if an employee breaches any material provision of the agreement, or pursues a claim against company (other than a few excluded claims), they will agree to indemnify the company for any losses suffered, including all reasonable legal and professional fees incurred.

The Agreement must be correctly drafted to be valid and it becomes a fully binding enforceable contract once signed by both parties and a certificate from the employee’s legally adviser is produced and annexed to the Agreement. If the Agreement is breached, it's a breach of contract and the party which has suffered the breach can make a claim for damages resulting from the breach. damages alone would not be an adequate remedy for any breach of the terms of this agreement. Accordingly, the Discloser shall be entitled to the remedies of injunctions, specific performance or other equitable relief for any threatened or actual breach of this agreement by the Recipient.

What can be done to stop a breach?

There is nothing to stop any breach from happening but usually you find breaches do not occur because neither party wants to end up in litigation (this is usually why the Agreement is signed in the first place), the sum offered was acceptable to parties at the time (and employees have to get legal advice on the terms before any such agreement can be valid) and no one wants to face a claim for breach of contract and face having to pay what could be a substantial amount of damages.

However, the best thing to do is be prepared so that you can react promptly and effectively to any breach and ensure that any confidentiality clauses within Settlement Agreements are well drafted otherwise your protection as an employer against certain disclosures may not be as watertight as you think.