Settlement agreement breach of contract is a term used when one of the parties entering into a settlement agreement violates the terms of that agreement. A settlement agreement is a contract that binds two parties together to perform obligations or refrain from actions or activities as part of a settlement of one of the party's claims.

For example, an employer may pay its employee a sum of money and benefits in exchange for the employee refraining from engaging in work with or soliciting business from the company's clients. Additionally, in exchange for the payment of the agreed-upon sum of money, the employee is waiving their rights to bring a claim against the employer for such things related to their employment termination. The salary is considered compensation for the claim the employee has the potential to file.

An example of a claim an employee could file is an employee who is terminated due to redundancy at their level in the company. The employee may have a case to dispute how the selection process was made, so instead of risking taking the case to court, the employer agrees to a settlement to avoid the costs and time associated with a potential lawsuit.

It is necessary for the employee to sign a settlement agreement in order to waive their statutory rights, otherwise any document they sign concerning this waiver would be considered unenforceable in court.

While settlement agreements can be considered a typical part of business for many companies, there are occurrences where one party does not abide by the terms of the settlement agreement which result in a breach. In the event that there is a breach of a settlement agreement the offended party can:

  • Initiate a civil claim in connection with the breach.
  • Seek intervention by the court that would have had jurisdiction over the original dispute.

To be able to use the latter remedy, it is essential that both parties pre-plan for the event of a breach and draft into the agreement a section that indicates the court will have the jurisdiction over disputes arising from the settlement agreement.

What is Breach of Contract?

At its core, a contract is an exchange of promises between two parties. A breach of contract can occur when one of the parties bound by the contract violates one or more of their obligations or requirements that had been laid out in the contract. When a breach of contract occurs, there is often some harm that is created for the non-breaching party by the failure to perform the actions or obligations.

Is a Settlement Agreement Required to Terminate Employment?

The answer to this question is no, though employers may insist on the completion of a settlement agreement before they pay out any money or continue any benefits. Your employer may require this so that you cannot seek a claim against them after they have already paid out a sum to settle with you. Additionally, for your waiver of statutory rights to be legally binding, it must be drafted in a settlement agreement.

What Are the Requirements for Entering Into a Settlement Agreement?

 

To make sure that the settlement agreement is legally enforceable, there are a number of legal requirements. The employee must have received legal advice on what the terms and effect of the settlement agreement are. This legal counsel must be independent and not employed by the company. This is to ensure that the employee understands everything they are agreeing to before they decide to waive their rights. The employee can receive legal advice from:

  • A qualified lawyer.
  • A certified and authorized official or employee of a trade union.
  • A certified worker at an employee advice center.

Additional requirements include:

  • Naming or the legal advisor in the agreement.
  • Formally putting the agreement in writing.
  • Specifying which claims the employee is waiving.
  • Stating that all of the requirements have been met.

Who Pays for the Legal Advice?

While there are no set requirements for this process, often employers will pay a portion of the legal fees for advice regarding a settlement agreement.

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