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Is a settlement agreement legally binding?

Yes, a settlement agreement is legally binding…

provided you take legal advice.

In this article we’ll explain more what is needed to make it legally binding.

If you want to know what a settlement agreement is, check out our other article: What is a settlement agreement and when to use one? (swancraig.co.uk)

If you want to ask for a settlement agreement from your employer, or you want to offer your employee one, the individual has to take legal advice on the ‘terms and effect’ of the agreement.  This means taking legal advice so that the individual understands exactly what rights and claims they are giving up, in return for the offer made within the terms; usually a financial exit.

Can I just sign it without getting legal advice?

Unfortunately not for it to be a legally binding agreement.   The law that controls settlement agreements is the Employment Rights Act 1996.  This is the legislation that says an individual has to take advice from a ‘relevant independent adviser’ – which means from either a qualified lawyer (like us), a trade union official/employee/member who has been certified as competent to give advice (and authorised to do so) by the trade union or, an individual working in an advice centre who has been certified as competent to give advice (and authorised to do so) by the centre.

Put another way, it is a very important legal contract concerning employment law rights so it goes without saying, legal advice is needed to make sure it is legally binding for both sides.  In order for the employer to know the employee has received legal advice, the adviser will either need to sign the agreement, or provide a separate letter (on their firm’s letterhead) known as an Adviser’s Certificate.

Most employers will offer a contribution to the employee’s legal fees (standard contributions are between £350 to £500 plus VAT) although the employer can contribute more or less.

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