What is a Settlement Agreement (with templates) ?

First published: https://docpro.com/blog65/what-is-a-settlement-agreement-with-templates

Settlement agreements, otherwise known as compromise agreements, are an effective way of resolving disputes between employer and employee. Settlement agreements are mutual, legally binding contracts between the two parties which help settle any claims an employee has against the employer. This enables parties to settle a dispute in a confidential way without taking legal action through the court system. Once the parties reach a settlement on the dispute through reconciliation, compromise, or other forms of alternate dispute resolution, they will then record the terms of the settlement in writing and have all the parties sign it such that the settlement agreement is binding.

What is a settlement agreement?

A settlement agreement is a legally binding contract that ensures the full and final settlement of all the claims one party has against the other in return for a certain consideration from the other party.

Simply put, under a settlement agreement, compensation is given by one party to the other and in exchange, the other party agrees to waive any claims associated with the dispute.

The most common types of settlement agreements are:

1. Employment Settlement Agreement

2. Debt Settlement Agreement

3. Traffic Accident Settlement Agreement

4. Post Nuptial Settlement Agreement

5. Intellectual Property Settlement Agreement

What is the purpose of a settlement agreement?

As the name suggests, the purpose of the agreement is to settle the dispute once and for all without the need to commence legal proceedings in court.

What are the benefits of a settlement agreement?

The traditional ways of resolving disputes such as litigation are high pressured, time-consuming, and costly. It is therefore much preferred for parties to reach a compromise out of court and record it in the form of a settlement agreement. Settlement agreements are a quick alternative to resolving disputes by taking legal action, in a manner beneficial to both parties. Once the compromise is reached, it is only a matter of drawing up an agreement and recording the settlement terms — a process that doesn’t take more than a few days.

What to include in a settlement agreement?

Settlement agreements are like any other regular contract. The essential requirements for a contract to be valid and enforceable therefore apply i.e., there must an offer, acceptance, consideration, an intention to create legal creations, the party’s capacity to enter a contract and certainty on the essential terms of the contract.

To understand the essential requirements for a valid contract, read more here.

There are a few key provisions that must be included in the settlement agreement:

(a) Payment terms: the amount and the timeline for making payments

(b) Scope of settlement: enlist all the terms of settlement to avoid any ambiguity

© Waiver: enlist all the claims of the party that are settled/released and by claims that are reserved

(d) Confidentiality: if the parties are supposed to keep the settlement terms confidential

(e) Legal costs: if a party is liable to pay for the legal costs incurred by the other party for instance solicitor fees for seeking legal advice on the settlement agreement

(f) Breach of contract: what are the consequences of a breach of contract?

(g) Execution of a contract: the parties have the requisite authority to sign the agreement.

Do you have to sign the settlement agreement?

No, settlement agreements are completely voluntary. The terms must be agreed to by the parties and no party can be forced to sign a settlement agreement.

What are the common types of a settlement agreements?

1. Employment Settlement Agreement

An employment settlement agreement is a legally binding agreement between the employer and employee where the employee agrees to settle all employment claims against the employer usually in return for financial compensation.

In simple terms, the employee agrees to not pursue any claim against the employer in the employment tribunal after signing the settlement agreement. It is a way to settle an employer-employee dispute in the manner mutually agreed by the parties.

What to include in the employment settlement agreement?

The settlement agreement records the terms and conditions of the settlement reached between the parties. Some of the key elements of the agreement are:

• the list of claims the employee agrees to waive;
• details of financial payments to be made by the employer;
• confidentiality terms to ensure that not only the terms and conditions but also the existence of a settlement agreement is not disclosed to a third party;
• a contribution by the employer towards the legal fees;
• any demand for a ‘good reference’ from the employer;
• status of the employment contract i.e. whether the employment contract gets terminated or not.
• a confirmation that independent legal advice on the settlement agreement was sought by the employee.

Read more here: https://docpro.com/blog65/what-is-a-settlement-agreement-with-templates