What happens if a company breaches a settlement agreement?
A settlement agreement is a legally binding document agreed between an employer and an employee setting out the terms of the end of their employment.
It’s usually in exchange for a financial payment as well as other benefits, and it’s often used in a redundancy arrangement, but it’s not the same thing.
You might have been offered a settlement agreement, or you may be an employer considering your options ahead of a redundancy situation…
So, it’s worth being aware that because a settlement agreement is legally binding, both employees and companies MUST abide by the terms set out within the agreement.
This means if there is a breach of the settlement agreement, the employee can bring a claim for damages against their former employer.
What Should Be Included In A Settlement Agreement?
A settlement agreement should include anything and everything that might be relevant.
That might include:
- A termination payment.
- Any remaining salary, notice pay, holiday pay, bonuses, and commission.
- A written agreement for the employee to waive their right to bring legal action at a later date.
- A signature by a solicitor or official representative.
- A ‘non-derogatory clause’ where both the employee and employer agree not to say anything negative about each other.
- A non-disclosure clause.
This is just a guide, but there are plenty of other clauses, payments, and non-financial benefits that might be included.
Remember, there are specific tax rules that relates to compensation and termination payments.
For example, the first £30,000 of any termination payment outside of any notice pay or pay in lieu of notice is tax-free.
If anything is missed in the arrangement, the employee may have a case to bring legal action further down the line, which is a risk simply not worth taking.
Employment tribunals are a last resort because they’re long, the waiting list is extensive, they’re costly, and you start to get tangled in all sorts of legal battles…
Which means it’s usually not the route either party wants to take.
What Do You Do If A Settlement Agreement Has Been Breached?
There are clear consequences if a settlement agreement has been breached, and it could mean that the agreement itself is called into question.
The ramifications will vary depending on the circumstances and how you want to proceed.
It’s at this point that you should seek legal advice, particularly if you want to pursue the breach of settlement agreement.
If a resolution can’t be reached with your former employers, then you can bring a breach of contract claim against them.
The goal of any legal action would depend on how severe the breach is, but in these circumstances, it’s most likely going to be compensation for any losses, damage to reputation, or other issues as a result of the breach.
That may be financial compensation or otherwise, depending on the agreement you can come to.
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