A Settlement Agreement (often referred to in the past as a Compromise Agreement) is a legally binding document made between employer and employee that typically ends their employment relationship in return for certain benefits, such as financial compensation, a reference, confidentiality, and a waiver of current or future legal claims.
Just as in the business world, a Settlement Agreement may be used in the charity, cultural and higher education sectors as a fair and respectful way of resolving disputes or setting out terms and conditions upon which to terminate an employment.
When drafting Settlement Agreements for the charity and cultural sectors, it will be important to consider the particular circumstances and legal requirements that apply. Charities will have specific obligations in relation to their charitable activities and governance, while cultural organisations may have obligations related to their artistic and cultural objectives.
8 key considerations
- Waiver of claims: Most commonly, settlement agreements are used to settle an internal dispute. Settlement Agreements can be used to settle all claims an employee has or may have against an employer. This is a way of ensuring finality and parties can “draw a line” under a dispute.
- Confidentiality: Settlement Agreements may include provisions requiring the parties to keep the terms of the agreement and the circumstances that led to it confidential. This can be important to a charity or cultural organisation to protect its reputation and maintain public trust. At the same time, a careful balance must be struck to ensure that these requirements do not conflict with charity governance principles of transparency, as criticism on this point may also harm an organisation’s reputation. Notably, in recent years the blanket approach to confidentiality and “non-disclosure” agreements has been criticised as potentially “gagging” victims of harassment in the workplace. Whilst not outlawed, new guidance encourages organisations to restrict their use to when absolutely necessary and never to use them to restrict an individual’s right to lawfully disclose a crime, wrongdoing, or where they might wish to go to the police or a regulator.
- Non-disparagement: for similar reasons, Settlement Agreements may include provisions that prohibit the parties from making negative, disparaging or harmful comments about each other.
- Compensation: Settlement agreements often provide for a lump-sum payment (tax-free to a point),ongoing payments, or other types of compensation in exchange for the leaver’s agreement to waive legal claims. The amount and structure of the compensation may depend upon the employee’s length of service, seniority, and the circumstances surrounding their departure. Charities must also ensure they are spending charitable funds appropriately, which may mean lower sums are paid for these types of settlements than in other sectors.
- Restrictive covenants: In some cases, Settlement Agreements may also include restrictive covenants that restrict the departing employee from doing certain things that could be detrimental to the organisation. They can take the form of non-compete clauses, non-solicitation of clients or employees, or non-disclosure of confidential information.These are most common where the employment contract already includes them, so the settlement agreement re-enforces them. It is possible, however, to add them in at this stage, although additional compensation is usually needed.
- Reference letters: providing references for the leaver can be addressed in the document. Employers often agree on the terms of the reference offering assurances regarding the employee’s future job prospects.
- Compliance with the law: Settlement Agreements must comply with all relevant laws and regulations, including those related to discrimination, harassment, and whistleblowing.
- Independent legal advice: Where a settlement agreement includes a waiver of claims, an employee must receive independent legal advice for it to be legally binding. Usually the employer makes a contribution to these costs (between £500 – £750 plus VAT depending on location).
The Counterculture legal team can help charities and cultural organisations through employment relations challenges which can be particularly difficult for small and medium bodies without in-house HR or employment law expertise. A Settlement Agreement is a useful tool for an employer to reach a full and final conclusion without worrying about having to face future claims. We understand the importance of ensuring that the agreement is fair, legal, and respectful to all the parties involved.
The Counterculture legal team can provide the independent legal advice to which you are entitled, with a cost contribution from your employer. We can advise on the implications of the proposed agreement and the effect it will have on your ability to pursue your rights before an Employment Tribunal. Whether you are in a senior post or otherwise, a long server or relatively new, we can help you negotiate the terms relating to the important issues listed above.