Settlement agreements

Stephen SimpsonEditor's message: Exiting an employee from your organisation can be a lengthy and uncertain process. However, a settlement agreement can offer an easier and potentially more cost-effective route to terminating the employment relationship.

A settlement agreement is a legally binding document that offers the employee a financial settlement in return for a clearly expressed waiver of any potential claims. It should contain a thorough breakdown of the payments being offered and commonly sets out what references will be provided, confidentiality, and a “non-disparagement clause”. The statutory requirements include that the agreement be in writing and that the employee has obtained independent legal advice before signing it.

High-profile cases on the use of confidentiality clauses (also known as "non-disclosure agreements") to silence victims of unlawful harassment or discrimination in the workplace have prompted the Government to review their use in settlement agreements. The proposals include that confidentiality agreements will not be able to prevent individuals from reporting crimes, harassment or discrimination to the police.

These reforms may prompt organisations to address any unacceptable behaviour and practices in the workplace, instead of masking the repercussions with a settlement agreement.

Stephen Simpson, principal employment law editor

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