Who can settle a Settlement Agreement?

A settlement agreement is a legally binding document. So who can sign it off? Emmajane Taylor-Moran, Partner and Head of Employment Law at Gelbergs takes a look…

The purpose of a settlement agreement between and employer and employee is primarily to protect the employer from claims by the employee, and in return for the employee waiving their rights to bring claims the employer pays an agreed sum in compensation.

Of course there are lots of other terms covered, including intellectual property, confidentiality, restrictive covenants, and more. Most often the agreement is also the legal instrument that terminates the employee’s contract of employment, so there is no resignation or dismissal, but this varies depending on the circumstances.

The settlement agreement becomes a binding contract once it is executed. This involves both parties signing it (sometimes as a deed) and usually also the adviser signing an appended certificate (more on this later). But if, as most do, the document contains a waiver of statutory employment rights (rather than just contractual rights), then it isn’t binding, or at least is challengeable if does not comply with the statutory requirements governing settlement agreements.

These are a set of provisions contained mostly in section 203(3) of the Employment Rights Act 1996, and mirrored within numerous other bits of legislation which add in an extra level of protection for the employee.

They include:

The agreement must be in writing

It must relate to a particular complaint or proceedings, i.e. list the potential claims being waived

The employee must get legal advice from a “relevant independent adviser” on the terms and effect of the agreement and its effect on their ability to pursue any rights before an employment tribunal

The independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice

The agreement must identify the adviser

It must state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied.

Independent legal advice

To be absolutely clear, the settlement agreement is not binding unless the employee receives independent legal advice on the effect of the agreement. There are four main categories setting out who can be a relevant independent adviser.

Qualified lawyers. But what does this mean?

In England and Wales this includes:

Practising Barristers and Solicitors

CILEx registered Legal Executives authorised to carry out litigation or advocacy

Chartered Legal Executives who are not authorised to carry out litigation or advocacy, providing they are employed by an SRA regulated Solicitor Practice and is supervised when giving advice by a solicitor with a valid practising certificate.

Registered European Lawyers (registered either with the SRA or the Bar Standards Board)

In Scotland, this means:

an Advocate, or a Solicitor holding a practising certificate.

Trade Union Officials

These can be officers, officials, employees or members of an independent trade union. They must also be certified by the union as competent to give advice and authorised to do so on the union’s behalf.

Voluntary sector workers

Advice workers are covered if they work at an advice centre (whether they are employees or volunteers), providing they have been certified as competent to give advice and are also authorised to do so on the centre’s behalf. An important condition on top of this is that they must NOT have been paid by the employee for that advice.

Others

This is covered by those specified in any order made by the Secretary of State, which so far includes categories of legal executive which for ease are listed in the section above on qualified lawyers.

How does an employer protect itself from ineligible employee advisers?

If there is any question about the eligibility of an employee’s adviser, then the employer should satisfy itself that the person advising the employee is in fact properly qualified and fulfils one of the statutory categories set out above. If they fail to do this, then as the employer, they bear the risk that the waivers in the agreement may not be enforceable, and no employer wants to hand over money in return for a guarantee that isn’t worth the paper it is written on.

The usual way to obtain some assurance in this respect is to include an adviser’s certificate as part of the agreement, which has to be returned duly signed by the adviser to the employer. If in doubt, employers can check a legal professional’s registration online with the Law Society, Bar Standards Board or the Chartered Institute of Legal Executives. For other potential advisers, such as union representatives and advice centre workers, written confirmation can be sought from those organisations as to the adviser’s authority and competence.

How important is independence?

This is a key requirement – otherwise the employee protection is absent and the advice is invalid. The adviser absolutely must NOT be:

The employee’s employer

Employed by the employee’s employer or any associated employers

A lawyer acting for the employee’s employer or any associated employers.

A settlement agreement should ideally include not only an affirmation by the employee that they have received independent legal advice, but also that the other aspects are satisfied, such as a statement that all the statutory requirements have been fulfilled.

In addition, the adviser’s certificate should include confirmation that that adviser is not (and has not been) also advising the employer. It sounds obvious, but could be an important safeguard in the event of a later challenge by the employee to the agreement’s validity.

What about Employers?

Since the statutory protections are there to safeguard the employee in these situation, there is no equivalent statutory requirement that the employer has to get legal advice. However, this would be eminently sensible in the circumstances, and in most cases employers do. It is wise for both parties to instruct a (different) specialist employment lawyer to make sure their rights and interests are represented, and their legal obligations explained to them.

What about other settling options?

Another form of settlement without the statutory requirement for independent legal advice, is when ACAS conciliate a settlement through a COT3 agreement. In fact, there is still a limit on what claims can be settled under a settlement agreement, and where those circumstances apply, it’s a good idea for employers to settle via ACAS.

In practical terms, a COT3 agreement via ACAS is often a simpler and quicker way to achieve a settlement. However, in reality most employers want a much more comprehensive document drafted by a solicitor that contains a high level of protection, and this is often much better suited to a settlement agreement. A third possible method is arbitration or mediation through ACAS, though this is  unusual and often only done in class action cases involving the unions.

Next Steps

The best option an employer has if they are thinking of “compromising out” an employee, i.e. offering them a settlement agreement in return for not bringing a tribunal claim, is to first take specialist legal advice on the situation. It is often much more complicated than it seems once the legal aspects are considered. As a bare minimum they should consult the ACAS Guidance on Settlement Agreements.

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