Ending Employment

Settlement Agreements

Unfortunately, if you employ staff it is possible that at some point you will end up in dispute. Ideally these situations should be resolved informally, however sometimes no matter how hard you try, it will be necessary to end the employment relationship in a mutually agreed way. Equally, you may find the need to reach an agreeable and final conclusion to a workplace dispute that does not result in the employee leaving. Settlement Agreements are a formal and legally binding way to resolve situations such as these.

What is a Settlement Agreement?

A Settlement Agreement is a legally binding document, usually between an employer and employee (or former employee), that sets out the terms and conditions agreed to avoid a possible Employment Tribunal claim or other legal proceedings. Settlement Agreements are voluntary, and neither party has to agree to even discuss them if they don’t want to. There is also no obligation to continue with a Settlement Agreement if acceptable terms cannot be reached. There is often a period of proposals and counter proposals before either an agreement is reached, or it is accepted that no agreement is possible.

Who can enter in to Settlement Agreements?

They are usually between an employer and employee, however Settlement Agreements can also be used to settle other disputes, for example where an unsuccessful job applicant feels they were discriminated against.

Settlement Agreements can be a useful tool to resolve disputes and protect against future costly legal proceedings…

Key features of Settlement Agreements
  • Settlement Agreements are legally binding
  • They are tailored specifically around the individual case in question
  • They are entirely voluntary
  • They are often used to avoid legal proceedings such as an Employment Tribunal. As such they can waive an individual’s rights to bring such a claim in relation to the terms covered by the agreement.
  • Settlement is usually reached after a period of negotiation. These negotiations are often confidential and may not be admissible in further legal proceedings should agreement not be reached
  • Agreements usually include some form of financial settlement, and will often include a reference as part of the agreed terms
  • The terms and implications of a Settlement Agreement must be explained to the employee by an adequately insured, independent advisor
Should you enter in to a Settlement Agreement?

From an employer’s perspective Settlement Agreements can be a useful tool to resolve disputes and protect against future costly legal proceedings. They can provide a swift and acceptable conclusion to a difficult situation and avoid the stress and expense of a tribunal claim. However, there is almost always implications to agreeing a settlement, both in terms of cost and potential damage to employee relations with the rest of your staff if used inappropriately. Settlement Agreements should never be a substitute for good management practice, grievance procedures and disciplinary processes.

To conclude, Settlement Agreements are legally binding and, by their very nature, complicated. Should you feel that a Settlement Agreement may be the best solution for a dispute you are experiencing in your workplace, speak to us. Our professional HR advisers are on hand to help you through the process.