A brief guide to Settlement Agreements

Settlement Agreements are used by Companies/HR as a legal tool for parting the company with an employee in a way which protects the company from any claims being brought by the employee which could potentially lead to litigation in the Employment Tribunal. Employers are now able to essentially ‘pay off’ staff. This is great for those organisations where there has been a threat of a possible claim. Organisations can agree a payment in exchange for the employee signing away their right to go to tribunal. Sounds simple enough! Let’s bring you up to speed with what you need to know –

• A Settlement Agreement outlines the agreement between the employer and employee on termination of the employee’s employment.
• The employer will pay a certain amount of money in exchange for the employee agreeing to waive his rights to go to an Employment Tribunal. It is important to bear in mind however; certain claims cannot be ‘paid off’ e.g. personal injury claims, pension right claims and rights to make a protected disclosure.
• Settlement Agreements can be negotiated and therefore it may take a few days or perhaps even months to negotiate, depending on how rigid your organisations Agreement is.
• The Settlement Agreement is legally binding once signed by both parties, therefore they must be adhered to otherwise there may well be a potential breach claim coming your way.
• If you’re thinking about offering a Settlement Agreement to an employee there is no need to instigate a disciplinary process before suggesting that discussions take place with a view to having a Settlement Agreement.
• It is important that the employee has a chance to be properly advised by an independent legal adviser. The organisation will usually settle the legal fees on behalf of the employee and should expect to make a contribution to the cost of legal advice, typically paying between £250 and £500.

So what are the benefits of a Settlement Agreement? –

• You no longer have to have difficult discussions with employees – it is actually ok to have these conversations!
• Employment ending with a Settlement Agreement are usually conflict free in what could be difficult circumstances.
• Definitely reduces the time and the stress of having to go through a grievance or a disciplinary process.

It’s important to also be aware of the downsides –

• Settlement Agreements can create an expectation amongst other employees that they will always be ‘paid off’ if anything happens. Employees will not resign if they are unhappy and will always suggest a Settlement Agreement route.
• What happens if Settlement Agreement negations break down? How will you get your relationship back on track after offering an agreement for claims the unhappy employee may have?