Settlement Agreements – 5 top tips for employers

Are you looking to take action against a staff member but know that the confrontation is going to be difficult and likely to leave both sides bruised and unhappy?   Have you or a member of staff been accused by a colleague of wrongdoing?  Do you simply want peace of mind knowing that you are unlikely to be the subject of a tribunal claim when an employee leaves?

If so, then you should consider approaching the employee with a Settlement Agreement (formerly known as a Compromise Agreement) which, once agreed, will have the effect of creating a binding waiver, in relation to claims including statutory employment law claims, such as unfair dismissal and discrimination.  Typically the waiver is given in exchange for the employee agreeing to certain exit arrangements and a sum of money.

Settlement Agreements will not be legally binding unless strict conditions are met.  Our employment team has extensive experience in negotiating and drafting watertight Settlement Agreements.

We have put together the following 5 top tips to help you secure the best settlement package possible:-

1.         Do not let the emotion of any confrontation get the better of you.  We see all too often employers making one comment out of turn and/or at the wrong time.  This leaves them exposed to a claim that has lost them valuable negotiation leverage, even though the employee is in the wrong.  Take a step back, seek advice and approach the situation knowing where the traps are.

2.         Negotiate behind a veil of confidentiality in case terms are not agreed. During negotiations it can be difficult to reach an agreement without being able to speak your mind freely, including making comments that would ordinarily damage an employer’s defence.  Employers should only have those types of discussions ‘off the record’.  There are two recognised bases upon which an ‘off the record’ chat remains legally confidential: the Without Prejudice doctrine and the Protected Conversation. However, each has their own unique conditions of use and limitations.  To make sure your negotiations remain confidential, first speak with your solicitor.

3          Always have a Plan B.  Confidential negotiations may break down so don’t throw all your eggs in that basket. For example, you may have met with an employee to discipline them. If they show interest in the settlement agreement proposal, it may be better not to postpone the disciplinary process while they contemplate their position.  The prospect of attending an impending hearing with the possibility of being dismissed for, say, gross misconduct, often helps the employee to make up their minds quicker than if there is no impending hearing.

4.         Think outside the money box.  While money is often the key driver for an employee to agree to a settlement agreement, do think about other things which might help get the deal over the line, for example, giving them their old work laptop or phone, agreeing to a positive departure announcement or reference (which must not be inaccurate or misleading) or reducing or waiving the length of some post termination restrictions.

5.         Don’t pay too much to settle.  Employees rarely want to bring an employment tribunal claim and are prepared to accept less than you might imagine.  They often just want enough money to cover their costs until they can get another job.  Work out a sensible sum to offer based on a multiple of a month’s net salary (and applicable benefits) as that is how the Employment Tribunal calculates awards in unfair dismissal cases.  In a buoyant sector of the labour market 1 or 2 months’ pay may be sufficient.

We have many years experience of successfully resolving disputes in the workplace for our employer clients.  We have a demonstrably good track record of identifying the weakness in employees’ arguments (or those of their solicitor) and obtaining a favourable settlement agreement within budget.

Please feel free to contact us if you need advice on a Settlement Agreement. You can contact your usual adviser or call 020 8971 1020 and ask for a member of the employment team. We have offices in Redhill, Wimbledon, Camberley, Woking and Teddington and you can find out more by visiting Settlement Agreements page.



Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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