The Settlement Agreement Dictionary
Don’t understand some of the words in your settlement agreement? You’re not alone. From Protected Conversations to Restrictive Covenants, settlement agreements are packed with legal jargon. In fact, that’s partly why the law requires an employee to take independent legal advice before signing an agreement: it’s so a lawyer can explain what the thing actually means.
However, as a consumer affairs journalist, I’m always up for some jargon-busting. So, I’ve put together a simple, plain English settlement agreement dictionary of all those legalistic words.
It’s the sort of guide I wish I’d had when I signed a settlement agreement. I hope you find it helpful: please share it on social media if you do.
Settlement Agreement Dictionary
Settlement agreements are legally binding contracts that settle claims an employee may have against an employer. The employee is usually paid a settlement payment for agreeing not to bring claims in the employment tribunal or court. The agreement must be in writing and the employee must have independent legal advice.
ACAS is the acronym for the Advisory, Conciliation and Arbitration Service. ACAS is an independent body that provides information, support and guidance for employers and employees on workplace issues and employment law.
Breach of contract occurs when a party does not honour a promise they made in a contract. For example, if they promised to not to bad mouth the employer but then posted negative comments on social media, or if they promised to return company property but kept it. The party that commits the breach of contract may be sued by the wronged party, if it has suffered losses, or enforce the promise made.
Compromise agreements are the same as settlement agreements. The name-change to settlement agreements took place in July 2012 along with other changes that made it easier for employers to make a settlement agreement offer.
Contracts are binding agreements between two parties. In English Law, there must be an offer and acceptance, with both parties giving something as part of the deal (this is called ‘consideration’). Contracts can be written or verbal. A settlement agreement is a type of contract.
COT3 agreements are used by ACAS to resolve a dispute between employers and employees. COT3 agreements must be overseen by an ACAS conciliator and are often used to settle claims after the employee has made an ACAS Early Conciliation claim or Employment Tribunal claim.
Courts are places where Judges consider legal disputes between parties. While some employment claims can be brought in the courts, most types of employment claims can only be heard by an employment tribunal (not a court). Courts charge fees to bring a claim and the losing party is usually liable to pay the legal costs of the winner (although for lower value claims in the small claims court, the amount of costs is fixed).
Compensation Payments are sums made under a settlement agreement to compensate the employee for damage suffered or loss of employment. This contrasts with payments made to the employee for contractual entitlements such as accrued wages, holiday pay, bonuses and notice pay. The term Termination Payment is sometimes used instead.
Derogatory comments are negative comments made about another person. Within many settlement agreements there will be a clause that says the employee promises not to say anything derogatory about the employer, associated companies, their directors, employees and agents. There may also be a repayment clause that says the employer can recover the compensation payment if it discovers derogatory comments have been made in breach.
Early Conciliation Claim is a claim submitted to ACAS by an employee before an employment tribunal is raised. In most cases, an employee is required to do this before making an employment tribunal claim. ACAS will then see if it can help the parties to resolve disputes before going to tribunal. If no deal can be reached, ACAS issues a certificate, to prove an Early conciliation claim was submitted. The time spent in Early Conciliation will impact on the time-limit for lodging an employment tribunal claim.
Employment Tribunals are places where some many types of employment claims must be brought and decided. There are approximately 35 employment tribunal venues across the UK, and claims are usually handled by the employment tribunal closest to where the claimant lives. Cases are decided by an Employment Judge sitting alone, or a panel of three, including a Judge and two lay members (one from an employer organisation background, the other from an employee organisation background, such as a trade union).
Ex-gratia payments are made for a moral purpose rather a legal requirement. If an employer offers to make an ex-gratia payment it is effectively saying we don’t have to pay you this money.
Indemnities are promises to compensate another party if they suffer a loss or incur a liability, usually because a specified event has occurred. In settlement agreements, an employee will usually indemnify the employer in relation to any additional income tax or employee national insurance liabilities the employer incurs on the payments it makes to the employee. The scope of these indemnities can sometimes be an area of negotiation between the parties. Indemnities can cover a wide number of liabilities and circumstances.
Outplacement is the provision of support to an employee in finding new employment. It is sometimes provided by employers making an employee redundant in the form of benefit under a settlement agreement, usually by means of direct access to an external outplacement provider or agreed financial contribution the employee can use for outplacement.
PILON is an acronym for Payment in Lieu of Notice. It means the employee’s employment is terminated without serving the contractual notice period and the employee is instead paid a lump sum equal to the notice entitlement instead of working the notice period.
Post-termination Restrictions are restrictions that prevent an employee from competing with his/her ex-employer, after employment ends. Typically found in employment contracts or settlement agreements, they seek to prevent solicitation and dealing with customers, poaching employees or competing within a specified territory. They will be unenforceable if they are more than what is reasonably necessary to protect the legitimate interests of the employer.
Protected Conversations (also known as pre-termination discussions) are discussions between an employer or employee concerning the offer of a settlement agreement. A protected conversation can’t be referred to in an ordinary employment tribunal claim unless a tribunal decides there has been improper conduct, such as undue pressure to accept the offer.
Protected Disclosures are communications made in the public interest by a worker to the employer or another relevant person or organisation, about a breach of the law. There is no requirement for a protected disclosure to be made in writing. A person that makes a protected disclosure is sometimes called a whistle blower and may bring a claim if he/she suffers a detriment or is dismissed for blowing the whistle.
Relevant independent advisers are defined in legislation as persons, such as a solicitor or barrister, who can advise employees in relation to the terms and effect of a settlement agreement. It is a requirement of a valid settlement agreement that an employee has advice from a relevant independent adviser.
Restrictive Covenants See the definition post-termination restrictions (above)
Redundancy happens when an employee loses his job because the workplace closes or the employer has a reduced need for employees performing a particular type of work. Redundancy is a potentially fair reason to terminate an employee’s employment. Employees with two or more years continuous service are entitled to a statutory redundancy payment if they are made redundant.
Statutory Claims are claims that are based on statutory law introduced by Parliament as opposed to common law rights that come from case law. Your right not to suffer discrimination is a statutory right contained in the Equality Act 2010 and the right not to be unfairly dismissed is contained in the Employment Rights Act 1996.
Severance Payments are payments made to an employee, usually recorded in a settlement agreement, as compensation for loss of employment. A severance payment contrasts with other payments an employee is entitled to under contract, such as accrued wages, holiday pay, contractual bonuses or payments in lieu of notice.
Section 111A of the Employment Rights Act 1996 was inserted into this Act in 2013 and introduced the Pre-termination Negotiation, otherwise known as a Protected Conversation.
Solicitors are qualified professionals that provide legal advice and representation. Solicitors are regulated by the Solicitors Regulation Authority and must hold a valid practicing certificate to be able to practice. The term ‘lawyer’ does not mean a person is a qualified solicitor.
Subject to Contract means an offer will be subject to the parties agreeing the terms within a contract. You will often see a letter or email marked ‘Subject to Contract’. If you write back to accept the offer the next step will be for a formal contract, often a settlement agreement, to be produced in which the terms of the offer will be contained.
Subject Access Requests are requests made by a person from an organisation for information about the individual’s personal data and how it is used. The right to make a request is contained in the Data Protection Act 1998 but a new Data Protection Act will be introduced in 2018. Employees and Ex-employees may make a Subject Access Request. Sometimes Settlement Agreements contain a clause confirming the employee agrees not to make a request or to withdraw a request already made.
Termination Date is a term used within a settlement agreement, typically referring to the date your employment ended, or will end, you are still employed at the time you sign the settlement agreement / compromise agreement.
Third party means someone other than the parties to the agreement.
Without Prejudice rule means a communication like a letter, email or discussion cannot be referred to in the employment tribunal or court. The without prejudice rule is intended to allow parties to speak freely about an existing dispute and make offers, save in the knowledge those discussions will not be used against them. You will often see the words ‘without prejudice’ used in a settlement agreement offer letter. Some people wrongly believe that merely labelling a letter without prejudice is enough to gain the protection of the without prejudice rule. There must first be a dispute in existence and in some circumstances (for instance when an employer commits an act of discrimination during a without prejudice discussion), a court will be able to consider what was said. In other words, an employer cannot hide behind the without prejudice rule to discriminate.
Without Prejudice Save as to Costs means the letter, email or discussion cannot be used in an employment tribunal or court, except in relation to legal costs. This means the writer of the letter can refer to the letter after the case has been decided, in support of an application to the court, or tribunal, that the other party pays its legal costs.
Without Prejudice and Subject to Contract This means the letter, email or discussion cannot be referred to in the employment tribunal or court and the offer made can only be accepted in principle, and is subject to the parties entering into a contract. Typically, an employer will offer severance package and make the offer subject to the employee signing a settlement agreement (formerly called a compromise agreement). The settlement agreement is the contract.
Undertakings are contractual promises to do something. For example, an employee may undertake to return company property on termination of employment, or undertake to provide reasonable assistance with a handover of work. It is usual for an employee to give undertakings to an employer in a settlement agreement.
Warranties are contractual promises about a state of affairs or that something is true, such as a warranty that an employee has not done anything that would amount to gross misconduct. In settlement agreements, an employer will often rely on warranties an employee gives within the agreement. If the employer discovers the promises are untrue, it may sue the employee for breach of warranty, or rely on the breach to recover payments it made to the employee.
Waiver is an act of giving something up. In settlement agreements, there will usually be a waiver clause where the employee waives claims (i.e. surrenders) claims against the employer. The main purpose of settlement agreements is to record a formal waiver of claims.
For more information, guidance and Employment Solicitors answering your settlement questions, try out our settlement agreement hub.
IMPORTANT: The contents of this page are for guidance only and are not intended to be (nor do they amount to) legal advice. You should always check the specific definitions in your settlement agreement to ensure you know the correct meaning of words used in your settlement agreement.