Full and final settlement

What it is

A full and final settlement clause is the heart of a settlement agreement. In exchange for the payment and other terms, you agree that every claim you have, or may have, arising from your employment and its end is settled, so that they cannot be brought later.

In Maltese law a settlement agreement of this kind is a compromise under the Civil Code (Cap. 16, articles 1718 to 1731): a contract by which the parties, by means of something given, promised or retained, end a lawsuit that has begun or prevent one that is about to begin. Between the parties it has the effect of a final judgment, and it cannot be set aside on the ground of an error of law (article 1729). It settles only the disputes the parties had in view: a general renunciation of all rights and claims applies only to what relates to the dispute that gave rise to the compromise (articles 1725 and 1726).

What it usually covers

Typically: claims for unfair dismissal, unpaid wages and notice, bonus, discrimination, breach of contract, and claims against group companies, directors and officers. Employers often draft it widely, to reach claims you do not yet know about. Under the Civil Code, though, a compromise settles only the disputes the parties had in view, which is why the description of the dispute matters as much as the release.

What it should not cover

• What you are owed under the agreement itself. The employer’s promises must survive.
• Accrued pension rights, and rights under insurance that continue after you leave.
• Claims you cannot know of, such as a personal injury that has not yet appeared, if the law allows them to be excluded.
• Your right to enforce the agreement.

Whether, and how far, rights under the Employment and Industrial Relations Act can be settled in this way is a question to take advice on, on your own facts. It is one more reason for the agreement to state clearly the dispute it settles.

What to check before you sign

• the amount, when it is paid, and what happens if it is not;
• the tax treatment of each part, agreed with your adviser;
• what happens to share awards and deferred bonus;
• the covenants, confidentiality, the agreed announcement and the reference;
• that any obligations on you are clear and limited, and match those on the employer.

Once signed, a settlement is very hard to undo. Take advice before you sign, not after.