A settlement agreement, compromise agreement or “exit agreement” are common names for agreements which, in the context of employment law, are legally binding contracts between an employer and an employee, usually entered into when the employment relationship is terminated or about to be terminated.
Key elements of a settlement agreement typically include:
- Termination of Employment: The agreement will specify the terms and conditions of the termination, including the date of termination and include references to payment of salary and benefits being made in the normal manner up to the Termination Date.
- Termination Payment: Settlement agreements often involve a Termination payment which is a payment made in excess of an employee’s statutory or legal entitlements. Upon termination of employment, an employee is usually entitled to their notice payment (whether paid in lieu or not) and their accrued but untaken annual leave. If the employee is made redundant they are also entitled to a statutory redundancy payment provided they have 104 week’s continuous service and satisfy other requirements under the Redundancy Payments Acts 1967 (as amended).
- Full and Final Settlement Clauses: This is an extremely important section as the employee is essentially waiving their rights to take legal action against their employer in return for receiving the Termination Payment.
- Confidentiality: Both parties usually agree to keep the terms and details of the settlement confidential. This may include not disclosing the terms to other employees, competitors, or the media. An employee can disclose such information to professional advisers such as tax advisors, solicitors and authorities such as the Revenue Commissioners etc.
- Non-Admission of Liability: The agreement often includes a clause stating that neither party admits fault or liability. This is especially important for the employer to protect themselves from potential legal claims.
- Statement of Employment: The agreement may include provisions regarding the provision of a statement of employment that the employer will provide for the employee. This is crucial for the employee’s future job prospects. An employer is under no legal obligation to provide a reference to an employee and many will generally give basic information such as start and finish dates and job title in the statement.
- Non-Disparagement: Both parties may agree not to make negative statements about each other.
- Return of Company Property: The employee may agree to return any company property, documents, or information in their possession.
- Post-Employment Restrictions: There may be clauses addressing non-compete, non-solicitation, or general restrictive covenants that the employee agrees to follow after leaving the company.
- Tax Indemnity: Provisions may be included to address the tax implications of the Termination Payment to ensure it is made in the most tax efficient manner permissible by law.
- Legal Fees: The agreement may specify how legal fees will be handled, whether the employer will contribute to the employee’s legal costs in seeking advice on the agreement.
It’s important to note that for a settlement agreement to be legally binding, certain requirements must be met. These typically include that the employee must obtain independent legal advice before signing the agreement, and the agreement must be in writing. Many employers will make a contribution to the costs of an employee obtaining independent legal advice.
Employees are advised to consult with an employment law solicitor before signing a settlement agreement to ensure they understand its implications fully. Employers often provide a contribution towards legal fees for this purpose.
We have extensive experience in advising employees on compromise agreements including advising employees if the Termination Payment is sufficient to effectively “buy” claims which an employee could have in respect of their dismissal.
Please feel free to contact us if you require any assistance on compromise agreements or have any queries in respect of them.
