What happens when a signed Settlement Agreement has received no legal advice?

Anecdotal evidence suggests that some employers are producing settlement agreements without the requirement that the employee takes legal advice. Are these enforceable?

As a general rule it is against public policy for one party to oblige another to contract out of the right to bring legal proceedings. This is particularly the case where there is an inequality in the bargaining position – employer/employee and then there’s the statutory provision under the Employment Rights Act which states; ‘the employee or worker must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and, in particular, its effect on his ability to pursue his rights before an employment tribunal’.

So, why would an employer take the risk of getting the employee to sign an unenforceable agreement?

Perhaps the first reason is just plain ignorance. Whilst this is never going to be a defence, the rules surrounding settlement agreements are complex and where an employer rarely undertakes such a process, especially where they may be making redundancies for the first time due to Covid-19 restrictions, there may be some understanding of the error.

However, where the employer goes to the effort of producing a document, there may well be other reasons for not allowing or advising the employee to take legal advice.

Where the ‘settlement’ sum is, actually no more than an employee is contractually or statutorily obliged to receive, then nothing is being settled and, if the ‘payment’ is an existing obligation, then any contract will be without consideration and therefore worthless. The advising solicitor will pick up on this quickly. And this is always a worry when sending an employee to an independent advisor.

Where there has been breach of contract or statute, the independent adviser will explain this to the employee together with their available remedies. The question then is whether the compensation in the agreement is sufficient for the employee to take the money and sign away their rights. Too little and the solicitor or employee are likely to come back asking for more. Therefore, getting the level of compensation right is quite a fine art. Then there are solicitor advisers who are just bloody minded and will argue for the sake of it creating additional difficulties even if these are spurious.

Costs may be an issue too. The employer’s solicitor may well charge £500 for the drafting of an agreement and then the employee’s independent adviser will want a similar amount to advise, with the going rate being between £350 and £600 plus VAT. Anything less than this will mean the employee will find it almost impossible to find a solicitor to undertake the work.

Of course, there may be occasions when the employer is almost certain that the employee will take the matter no further and just want the payment to be recorded. And, there is no reason why an agreement may not be contractually binding, even if it does not have the effect of stopping legal proceedings being brought. So, for instance, an agreement could deal with confidentiality or bad mouthing without the need for independent advice.

The upshot of all of this is that, in all but very limited circumstances, any attempt to circumvent the independent adviser requirement will result in at best a voidable contract or, even more likely, a void contract that is not worth the paper it’s written on.

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