An Overview Of Settlement Agreements

The article emphasizes that workplace conflicts, though common, should be resolved promptly and professionally. It discusses settlement agreements as a strategic approach to terminate employees amicably, protecting businesses from future legal claims while ensuring confidentiality and compliance with employment laws.
UK Employment and HR
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Clashes in the workplace are, to some degree, to be expected and should not unduly impact on the smooth running of a business. Opinions will differ and in general, any difficulties can and should be resolved promptly and professionally. There are situations, however, where repeated clashes do have a negative impact both on the parties involved and the wider workforce. Should this be the case, it may be time to consider a parting of the ways.

A settlement agreement is often the most acceptable way of orchestrating an employee's termination of employment where there is no adverse behaviour that could lead to dismissal. Settlement agreements can be proposed by either party and, in general, employers are more likely to introduce the suggestion. The proposal to enter into a settlement agreement ought to arise out of a without prejudice offer to reach a settlement. This should ultimately follow the protection is section 111A of the Employment Rights Act 1996 in which any offer made for a settlement agreement, or subsequent discussions about it, cannot be used as evidence in any subsequent employment tribunal claim of unfair dismissal.

A settlement agreement, approved by both parties, will safeguard a business against many types of employment tribunal claims brought at a later stage. However, the terms of a settlement agreement will vary in accordance with the situation and how it is intended to be applied.

Daniel Theron, a Partner, points out"Settlement agreements often arise when it is considered best to terminate an employee's relationship with the business in a mutually agreed manner, in circumstances where the relationship between the employee and employer is no longer working, but there is no cause for dismissal. When a decision is reached the best course is a "clean-break" settlement agreement. Settlement agreements can also be applied to workplace disputes where there is no parting of the ways." Daniel further commented "where there are frequent clashes between particular personalities in the workplace this can have a disruptive and negative effect on other members of staff."

Advantages of a Settlement Agreement

  • They are legally binding;
  • They can include terms that waive an employee's right to bring a claim in the Employment Tribunal, save for specific circumstances (for example, non-compliance or a personal injury claim not yet foreseen);
  • They are completely voluntary and either party can withdraw at any time;
  • There is no obligation to accept terms suggested;
  • They are confidential and the proposed terms cannot be invoked as evidence in any future claims if the terms are not accepted.

Before embarking on the negotiations leading to a settlement agreement there are considerations to be weighed up. Should the reason for considering a settlement agreement be because of a fractious situation between employees, and should terms not be reached, there may be the potential of damage to any future relationship with the employee/s in question, creating an even more disruptive situation. This could also impact on the wider workforce if the offer of a settlement agreement to an employee is unanticipated with no previous mention of any issue, this could have the potential of creating concerns and undermining confidence. However, as noted, such discussions should be kept confidential and should not be admissible in any potential employment tribunal claim in the future.

There is no legal obligation to do so, but allowing the employee to have a third party as a support during the negotiations is often a wise decision. A work colleague or trade union representative will provide another point of view.

If the third party is a colleague, paid leave should be offered to enable them attend the discussions. Also, if a trade union representative is selected, they must not suffer any adverse effects as a result of any support they offered. A contravention could lead to an employment tribunal claim. It should also be noted that in certain circumstances a refusal to permit an employee to be accompanied could amount to discrimination, such as in the case of a disabled employee, where denying permission to be accompanied due to the nature of their disability could constitute discrimination. This would be based on the particular circumstances, but employers should err on the side of caution in respect of such matters to avoid a potential complaint.

The Process

  • A settlement agreement can be offered and discussions can be opened in writing or face to face, outlining the reasons for the discussions.
  • It should be made clear from the onset that the discussions and the resolution are held in confidence and the views expressed cannot be utilised in any other procedures relating to the situation, or within proceedings before an employment tribunal. However, it should be noted that such discussions cannot be used as a vehicle to effect perjury, blackmail or another form of unambiguous impropriety.
  • The offer should be made in writing for the avoidance of any misunderstandings and the terms must be clearly outlined.
  • The terms are open to variation through discussion.
  • Any financial offer made by way of compensation should be unambiguous.
  • A period of ten days should be allowed to enable the employee to consider the offer and take legal advice in accordance with the ACAS Code of Practice on Settlement Agreements (under section 111A of the Employment Rights Act 1996).

Once the terms of the settlement agreement have been determined, including the financial arrangements such as statutory holiday pay etc. which are part of the normal contractual obligations, the notice period and termination date can be decided. It is possible for the parties to agree a payment in lieu of notice to arrange for a swifter termination of the employee, which may benefit both parties depending on the circumstances.

Giambrone & Partners extremely experienced employment lawyers point out that all settlement agreement negotiations should be viewed and conducted from the point of view of the individual and their circumstances which must be accommodated. Tailoring the process to suit the employee should eliminate the potential for inadvertently discriminating against an employee with one or more protected characteristics. Such considerations as ease of access for a disabled employee or avoiding inadvertently setting a date for the negotiations that clashes with an employee's religious obligation, as well as remembering to engage the services of a speech to text reporter for the deaf or hard of hearing employee.

Furthermore, it is imperative that once an agreement has been reached, legal advice is obtained as to the terms of the agreement to ensure it adequately protects the interests of the company against potential future employment claims. The employee must obtain independent legal advice on the agreement to ensure it is legal binding on the employee and employer, and the employer must offer a contribution towards the employee obtaining this advice.

A settlement agreement can be a satisfactory way for all parties to be extracted from a difficult situation and avoid a range of adverse outcomes. However, it is strongly advised that expert legal advice is obtained throughout the process.

Daniel Theron advises on litigation in family law, employment, cross-border debt recovery and defamation. Daniel has considerable expertise in contentious cross-border family law, including complex financial arrangements and enjoys a high level of success in both debt recovery and employment law.

Daniel enjoys a reputation of being meticulous in his analysis of the merits of a matter and tenacious in his pursuit of a successful outcome for clients. He frequently impressively navigates challenging situations culminating in an excellent level of achievement, in excess of all expectations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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