What is a Settlement Deed?
By Hailey, published: 2023-10-24
What is a Settlement Deed?
Similar to a divorce settlement but ideally agreed under more favourable circumstances, a settlement deed is an agreement through which two parties negotiate an alternate conclusion to the end of a contractual agreement.
A settlement deed aims to facilitate more favourable conditions than what would typically result from a contract breach.
Settlement deeds are common, and nearly all companies across various sectors use them. However, creating a legally binding document can be an exact and hazardous task, particularly when determining what to include in its provisions.
What happens after a Deed of Settlement is issued?
Fundamentally, under a settlement deed’s terms, the parties acknowledge the end of the contractual agreement and concur on steps to ensure a smooth transition – often more advantageous to both parties than penalty damages.
A prevalent scenario for a settlement deed is during employment termination, where the employee receives severance pay from their employer in exchange for agreeing not to pursue legal claims against them in a tribunal or court.
However, settlement deeds are not solely for use in employment termination; they can also be applicable during an ongoing employment period when parties wish to resolve a dispute that has emerged between them.
When to use a Settlement Deed
While a settlement deed can be relevant in various situations, it is commonly employed when employers desire to end a contract on mutually agreed terms with their employees, thus minimising the risk of the employee initiating an employment tribunal claim against the organisation.
Often, signing a settlement deed with pre-agreed terms is seen as a shortcut, circumventing the lengthy and strenuous processes usually associated with actions like conducting a performance review or undergoing a complete redundancy procedure.
Alternatively, if an ongoing business contractual relationship needs to end, negotiating specific remediation acceptable to both parties might be preferable to compensate for any losses or difficulties.
Other uses of a Settlement Deed
Grievance Resolution (or Settlement) Letter
A Grievance Resolution or Settlement Letter is a formal document that signifies resolving issues or disputes between an employee and their employer.
This letter is pivotal when employee grievances have been amicably resolved, ensuring that the terms of the agreement are clear and binding.
It serves not only as a record of the settlement but also as an assurance of the employee’s rights being acknowledged and respected.
Full and Final Settlement Letter
A Full and Final Settlement Letter is sent upon the termination of employment, outlining all the final payments due from the employer to the employee.
This comprehensive document includes all forms of compensation, such as outstanding salary, bonuses, and reimbursements, ensuring no future financial claims or disputes during the employment period.
It’s a formal acknowledgement that all existing monetary obligations have been honoured.
Settlement Offer on Disputed Amount
When there’s a disagreement over a sum of money, a Settlement Offer on a Disputed Amount is a proposal made by one party to the other to resolve the issue by paying an amount that may be different from the original sum under dispute.
This offer, usually written, signifies a willingness to compromise and avoid further legal tangles or prolonged conflicts.
How are the Settlement Deed’s terms agreed?
To fulfil its primary role of avoiding the protracted and arduous process of formal contract breach procedures, a fair and equitable agreement must be reached between the parties.
This implies that the settlement deed’s terms are mutually agreed upon and will be detailed in the written settlement agreement, specifying which claims the parties agree not to bring to court in exchange for other benefits or compensation.
Consequently, it’s paramount that both parties comprehend their respective desires; for instance, one party might seek financial compensation, while another may desire restitution, asset allocation, or a non-competition/non-circumvention agreement.
The terms within the settlement deed must be bespoke and highly tailored to meet the specific expectations and requirements of the employee.
Similarly, the parties must ensure the deed encompasses an express waiver of relevant claims that the aggrieved party might have under a contract breach.
What financial terms should be included in a settlement deed?
The settlement deed should clearly outline the compensation amount and any additional agreed payments. The deed should also specify the payment schedule, if applicable.
Factors in negotiating employment termination settlements
If an employee is due any bonuses or commissions earned during their employment, this owed amount should be explicitly stated in the settlement deed.
The precise amount paid to the employee under the settlement agreement varies wildly, depending on factors like the reasons for the employee’s termination, their preferred compensation form, and any claims that might have emerged during employment.
The employee might also opt for non-monetary benefits. For instance, it’s not uncommon for parties to agree that a reference will be part of the settlement agreement.
The deed might also contain a clause ensuring that, in drafting this deed, the employer will adhere to the pre-agreed wording of the reference established as part of the settlement terms.
What other remediation terms are possible within a settlement deed?
A settlement deed may also include a non-disclosure agreement, mandating that the parties keep the terms of the agreement, the compensation amount, and the relevant circumstances leading to the deed confidential.
Furthermore, it might be prudent to include clauses prohibiting any negative, defamatory, or derogatory remarks about the respective parties as they conclude their contractual relationship.
Settlement deeds have demonstrated their worth as a significant instrument in the corporate and commercial spheres, ensuring that contractual disputes between parties are resolved as amicably as possible without resorting to formal legal action, often before any court involvement.
That said, drafting and agreeing on the deed’s pertinent terms can be both a tedious and time-intensive endeavour.
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