Breaching a settlement agreement, whether as an employer or an employee, can lead to legal consequences such as withheld payments or claims for damages, making it essential to understand and fulfil your obligations as outlined in the agreement.
When is the settlement agreement breached?
A settlement agreement can be breached by either party if they fail to fulfil their obligations as described within the agreement.
For example, a key obligation of an employer is to pay the settlement sum within the requisite time period. If the time period lapses a breach has occurred.
Breach of the settlement agreement by an employee
An obligation on the part of the employee may be to maintain a duty of confidentiality in relation to the payments being made under the agreement. If a confidence is broken a breach has occurred.
What happens if an employee breaches the agreement?
The most common outcome when an employee breaches the agreement is that the employer withholds some, or all, of the termination payment.
This could happen for example in a situation where the employer believes there has been a breach of a duty of confidentiality or a breach of the non-derogatory
statements provision within the settlement agreement.
In this situation, the employer’s advisors are likely to write to the employee or employee’s advisor and request an explanation of why a breach has occurred pending which some or all of the termination payment may be withheld. If an adequate explanation is not forthcoming a claim may be brought against the individual concerned for damages arising from the breach.
What happens when there is a failure to comply with a settlement agreement from an employer failing to pay the sums due?
As stated above one way an employer may breach an agreement is by failing to pay the settlement payment within the requisite time period or by breaching the duty of confidentiality in relation to the agreement itself.
In either case, a claim for breach of contract which may be brought in the County or High Court has arisen. If the claim is for compensation in excess of £10,000 then the employee may pursue this claim and recover his or her legal costs if successful.
If certain individuals at the employer speak about the agreement or the circumstances leading up to it after it is signed this could constitute a breach of the confidentiality undertaking within the agreement.
It is essential for individuals to take settlement agreement advice uk on the wording of these agreements to ensure that they are fully covered from any potential losses which would arise from an employer disclosing the nature of the circumstances leading up to the settlement agreement.
Breach of contract
If an employer has authorised or encouraged the disclosure of information relating to the agreement or the making of derogatory statements about an individual entering into a settlement agreement a claim for breach of contract as well as a claim for defamation may have arisen.
It is for this reason that employees need to consider carefully the undertakings that they are offering to the employer and conversely that the employer is offering to them in relation to confidentiality and non-derogatory statements undertakings.
Post-termination restrictions breach
If there is a breach of post-termination restrictions within the settlement agreement then the employer has the right to pursue a claim in the High Court. This claim could be for an injunction preventing the individual from carrying out certain activities for example taking up new employment with a particular employer.
In addition, an employer may make an application to the court for an ‘account of profits’ if it is suspected that the individual’s actions give rise to losses incurred by the employer and/or damages to compensate the employer for those losses it has incurred.
In conclusion, breaching a settlement agreement can have serious consequences, whether you’re an employer or an employee. It’s crucial to understand the terms of the agreement and to fulfil your obligations to avoid potential legal action.
If you’re unsure about any aspect of a settlement agreement, it’s always a good idea to seek legal advice. Remember, a settlement agreement is more than just a document—it’s a commitment that requires understanding and respect from both parties involved.
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With over 10 years of experience in employment law matters, David Philip Harris specialises in providing legal advice on settlement agreements to both employees and employers throughout the UK. David’s opinion and advice are frequently sought after as he contributes often to BBC Radio Berkshire and the People Management Magazine. David Is a long-standing member of The Employment Lawyers Association and The Law Society.