Settlement agreements are typically offered to employees when their employer wants to terminate their contract. Often this is due to redundancy but can also be offered if an employer thinks they are performing badly or believes there is misconduct. Usually an employee is given money in return for certain conditions, including not bringing a claim against their employer.

Earlier this month the Court of Appeal ruled that a firm cannot be sued for negligence after parties had signed a covenant as part of a settlement agreement. In Khanty-Mansiysk Recoveries Ltd v Forsters LLP it was alleged that the firm had been negligent in relation to the provision of legal services and advice over a share purchase deal.

Forsters LLP was instructed on the matter until July 2010. A director of the client company had made a personal guarantee for almost £75,000 in respect of outstanding fees, but by mid-2012 Forsters had issued proceedings for non-payment. Forsters, the client company and its director made a tripartite settlement agreement at the end of 2012 that crucially provided for a covenant not to sue one another in connection ’either directly or indirectly’ with the original matter. The client company went into liquidation in 2015 and the insolvency practititioners, KMR commenced proceedings against Forsters alleging failings in how the share acquisition was handled and claimed damages in excess of £70 million.

The case was primarily about the scope of the settlement agreement and whether it prevented a negligence claim.  The judge ruled that whilst it was common for a settlement agreement not to encompass all claims, for example, if someone had been injured, in this case the claim for negligence was linked to the settlement agreement and therefore the claim was not successful.

If an employee receives a settlement agreement from their employer the employee should have the opportunity to negotiate the agreement and the law requires that the employee has the opportunity to seek independent legal advice.

When considering the terms to include the employer may wish to prevent the employee from making further claims against them. As shown with the case above a settlement agreement can cover a range of possible claims.

Further Reading:

Are ‘Casual’ Staff Entitled to Workers’ Rights?

Informal business partnerships are a recipe for strife

Social Media and work: know your rights

Need further information on settlement agreements?

If you are an employer or employee and would like more in depth information on settlement agreements, please contact our litigation partner, Justin Sadler on 0118 9589711 or Justin offers a one hour fixed fee meeting for £95 inclusive of VAT.

CategoryBusiness, Employment

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