When an employee signs a settlement agreement, they are giving up the right to bring certain claims in an employment tribunal (and other courts) relating to their employment and its termination. In return, the employer will generally pay a sum of money to compensate them for waiving their legal rights.

Standard settlement agreement exclusions

While settlement agreements will be tailored for each individual and the circumstances, there are certain standard clauses which are found in the wording. These include carve-outs (exclusions) from the claims the employee is agreeing not to bring.

These exclusions are helpful to the employee because they preserve the right to bring certain limited claims against the employer in the future.

Standard exclusion clauses include claims in respect of:

• accrued pension rights
• latent personal injuries of which the employee is not aware at the time of the settlement
• breaches of the settlement agreement itself.

Other carve-outs are helpful to the employer because they seek to limit the obligations imposed on them by the settlement agreement.

These commonly include limits on:

• the terms of any reference to be provided;
• the extent of the employer’s obligation to prevent staff from making derogatory comments about the departing employee.

Drafting a settlement agreement which works for the employee

Generally, the employer will present the employee with a draft settlement agreement which they (or their adviser) has drafted. It will generally start from a position that favours the employer as much as possible.

When acting for an employee, we would:

• review their settlement agreement.
• seek to negotiate the widest possible favourable exclusions.
• narrow down, as far as possible, the exclusions which work in the employer’s favour.

Providing a reference for future employers

These days, fear of litigation means most employers have a policy of only providing a standard reference detailing dates of service and job title, rather than any subjective comment on the quality of the employee’s work.

The form of reference is often set out in a schedule to the settlement agreement. It is helpful if the reference letter specifically says that it is in accordance with the employer’s policy on references so no adverse inference is drawn by prospective employers.

There should be an express undertaking to provide a reference in this form, upon request.

Preventing employees from making derogatory remarks

Employers may resist an absolute obligation to prevent staff making derogatory comments about the departing employee. The typical defence is that they cannot police what all their staff may choose to say or write.

While an acceptable form of words can usually be found following negotiations, it is important that this obligation is not watered down so far as not to protect the individual at all.

Phrasing which employers have been using recently simply states that they will not “encourage or condone” staff in making derogatory comments.

We would advise clients that this is not strong enough to incentivise an employer to stop derogatory comments being made.

Understanding settlement agreement exclusions

Negotiating carve-outs and exclusion clauses in a settlement agreement is complex. Without independent legal advice and knowledge of employment law, it may be easy to agree a settlement offer that contains loopholes favourable to the employer.

As specialist employment solicitors, our team at Springhouse is perfectly placed to provide the professional advice you need during settlement discussions, and when signing an agreement.

To begin the process of obtaining the clean break you deserve, and guaranteeing the agreement conditions you need, get in touch today.