A Settlement Agreement is a legally binding contract between an employee and an employer usually signed just before or after the employment has been terminated. The goal of the agreement is to set out the terms of termination of the employment according to the company’s bylaws, state and federal laws as well as other regulations that might apply. In addition, such a settlement agreement also bars the employee from bringing any legal action against the employer, either due to the termination terms or issues that arose during the employment.
One of the major clauses within a settlement agreement is to do with the benefits. The agreement has to be clear on the benefits that the employee will be entitled to once they leave the company. The benefits are usually clarified during the employment process, and can also be influenced by state and federal labor laws.
The most important role of this document is to provide legal certainty and security for both parties after termination of employment. In addition to that, it ensures that the break is amicable, which usually works to the employer’s advantage. The employee also benefits from an amicable settlement agreement. In addition to enumerating the benefits they will get, the settlement also bars the employer from bad-mouthing the employee, and also provides them with a job reference that they can use when seeking other jobs.
The validity of settlement agreements usually depends on one’s understanding of the details of the agreement. Employees are usually encouraged to get independent legal advice about the contents of the agreement and their ramifications before signing it.