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30 Sep 2015


Top 10 Things Businesses Need To Know About Settlement Agreements

If you are in the process of dealing with an employment dispute, one way that you can avoid a costly and time-consuming Employment Tribunal process is through a Settlement Agreement.

Here are 10 things that employers need to know about a Employment Settlement Agreement.

1)  In 2013 Compromise Agreements were renamed “Settlement Agreements”. This was a change by the Government who believed that the new wording better reflected the reality of these agreements. It coincided with a Statutory Code of Practice on Settlement Agreements.

2 )  In practice, there is no difference between a Compromise Agreement and a Settlement Agreement. Under the new Regulations and Code of Practice, discussions about the offer of such an Agreement cannot be used in an ordinary unfair dismissal claim, unless the employer has shown improper behaviour.

3)  A Settlement Agreement is a written agreement between you and an employee that can be used to reach an outcome that is acceptable to both parties. This usually provides a financial settlement to an employee in return for an agreement not to pursue any claims in a Tribunal or a Court.

4)  Settlement Agreements can be used in a number of scenarios. They will usually apply when, as an employer, you don’t want to pursue a performance review or full redundancy process before terminating an individual’s employment.

5)  You can offer a Settlement Agreement at any point but it’s worth considering the impact that this could have on your on-going relationship with an employee if the agreement is not accepted.

6)  A Settlement Agreement may not always be the most appropriate course of action, since circumstances will differ significantly from case to case. Because of this, it’s always best to seek advice from a specialist lawyer before pursuing one.

7)  As an employer, it is desirable to take legal advice on the content of a Settlement Agreement, since they are only binding when in writing. A properly drafted Agreement will not only ensure that you achieve exactly what you wanted but also it’s more likely to be acceptable to your employee.

8)  If the terms of your Settlement Agreement are rejected, a specialist lawyer can assist with further negotiations. They can also provide you with a comprehensive risk assessment of the Agreement not being signed, and access to advice on commercially viable settlements. You will obviously need to make a financial offer to your employer, but a Settlement Agreement gives you control over the amount and timescales for payment, allowing full and final settlement of any dispute.

9)  You can also include specific terms relevant to the nature of a dispute, such as confidentiality clauses, restrictions on future employment and acceptable reference wording. Genuine settlement payments, up to the first £30,000, can be paid free from statutory deductions. You can pass this saving on to your employee, making an offer even more attractive.

10)  In order for an agreement to be binding, an employee must take independent legal advice as to the consequences of entering into a settlement agreement. It is normal for the employer to contribute to an employee’s legal empeses.

If you want to find out if a Settlement Agreement is relevant to your circumstances, or you just want advice on the process that’s involved, get in touch with one of our specialist team.


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