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Severance Agreements

Getting the ending right protects both parties.

A well drafted Settlement Agreement does more than obtain a waiver of employee claims in return for a financial payment.

In circumstances where there is a potential dispute brewing, or where an employee has raised the possibility of Employment Tribunal claims.

An employer may decide to enter into a severance agreement to record the terms of the employee’s departure, and document the waiver of claims by the employee in return for a severance payment being made by the employer.

However, many employers do not realise that unless the severance agreement complies with specific statutory requirements, it will not be an effective waiver of statutory claims (such as those for unfair Dismissal or discrimination) and will in fact, only waive the employee’s common law claims.

In order for a severance agreement to validly waive all of the employee’s claims, certain statutory conditions must be met. These conditions are as follows:

  • The agreement must be in writing;
  • The agreement must relate to a particular complaint or particular proceedings;
  • The employee must have received independent legal advice on the agreement and in particular on its effect on their ability to pursue the statutory rights in question;
  • The adviser must be identified in the agreement;
  • The adviser must have insurance in relation to the advice; and
  • The agreement must state that the conditions regulating settlement agreements in the relevant legislation have been met.

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