If you agree to part ways with an employee and agree to make a payment in full and final settlement of all claims, you must do it properly, or you could be facing the inconvenience and cost of defending a claim because your “settlement” is not legally binding.
Section 203 of the Employment Rights Act (ERA) 1996 requires that several conditions are met for a settlement agreement to be legally binding. Most importantly, the employee must have received legal advice from a relevant independent advisor, specifically on the terms of the agreement and the effect it will have on their ability to pursue any claim before an employment tribunal.
If the employee has not had independent legal advice, your settlement agreement is not legally binding despite having what you may think are all the elements of a valid agreement in place. Where an employment settlement is concerned, any “gentlemen’s agreements” or agreements without the ERA 1996 requirement for legal advice being met are irrelevant.
A solicitor will charge for a settlement service, and this is usually a cost the employer will have to meet. Alternatively, ACAS (Advisory, Conciliation, and Arbitration Service) after consultation with the parties, can produce a document called a COT3, and this service is free.
We encourage our members to not assume they can reach a mutual understanding with a departing employee, and for that to be the end of the matter without a solid agreement in place involving the relevant legal advice.
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