Settlement Agreements

The utility of settlement agreements

Settlement agreements have an important role to play for the employer to settle issues or disputes that may arise with its employees, whether such matters relate to the subsistence of the employment relationship or to its termination.

A settlement agreement may be entered into with an employee to address a grievance, concern or requirement that the employee may present to the employer. The employer may also resort to entering into a settlement agreement with an employee to formalise certain terms and conditions regulating the termination of such employee’s relationship with the employer, as a preventative measure to avoid the institution of a dispute before the Industrial Tribunal.

The utility of settlement agreements may also be resolutive, such that the employer and an employee may resort to entering into a settlement agreement to resolve and settle an ongoing employment dispute which would have initially been instituted by the employee against the employer before the Industrial Tribunal.

Which matters are typically regulated in a settlement agreement?

A settlement agreement may be used to regulate various aspects of the employment relationship and, in particular, its termination, as illustrated by the following examples:

A settlement agreement may regulate the nature and amount of financial compensation that the employer may agree to pay to the employee in view of the termination of their employment relationship.

Such an agreement may also prescribe, alleviate or even remove certain duties that may be incumbent upon the employee, such as confidentiality, non-competition and non-solicitation obligations.

A party to a settlement agreement may agree to waive an entitlement accruing to such renouncing party by virtue of the employment contract.

A party to a settlement agreement may also agree to indemnify and hold harmless the other party for certain damages, losses or actions that may arise in relation to or as a result of the employment relationship.

When negotiating the terms of a settlement agreement with an employee, the parties should ensure that they consider any statutory parameters and obligations that may be prescribed by virtue of any applicable law or regulation at the time.

Considering the potential implications that a settlement agreement may have in respect of an employment relationship, due care should be taken to ensure that legal advice is sought as soon as the employer identifies a situation or matter that may require resolution by virtue of a settlement agreement.