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Settlement agreements rather than furloughing? Five top tips for employers

Many employers have opted to furlough their staff, but the reality is that some have had to make the difficult decision to make staff redundant or offer them settlement agreements.

A Settlement Agreement might not be your first thought when contemplating the exit of an employee but it can often be worth serious consideration.  Are you looking to take action against a staff member but know that the confrontation is going to be difficult and termination proceedings potentially protracted? Do you simply want peace of mind when an employee leaves knowing that a claim will not be filed against you, particularly during these difficult times of high unemployment?

If so, then you should consider approaching the employee with a Settlement Agreement which, once agreed and signed, will have the effect of creating a binding waiver in relation to all 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 drafting and negotiating Settlement Agreements and we have put together the following 5 top tips to help you:

  1. Do not let principles have a negative impact on settlement discussions. We see all too often employers making a comment out of turn and being exposed to a claim that has lost them valuable negotiation leverage, even when the employee is in the wrong.  Take a step back, seek advice and approach the situation knowing where the traps are.
  2. Negotiate in confidence in case terms are not agreed. You do not want an Employment Tribunal (or the public) finding out what you may have offered in case they are influenced as to your wrongdoing or failings by the fact that you are prepared to offer a certain deal.   Defining and securing confidentiality during negotiations is a bit more complicated than you might think as there are two routes for discussion (the Without Prejudice doctrine and the Protected Conversation) each with their own rules,  and on which you should be advised at the outset.
  3.  Always have a Back up Plan.  Confidential negotiations do break down.  It is wise to carry on with any open process while the employee contemplates your offer. 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 formal process (whether it be for misconduct, poor performance or redundancy for example), or to only postpone it for a short period.  The prospect of attending a formal hearing particularly 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 meeting.
  4. Think outside the money box. While money is often the key driver for an employee to agree to a Settlement Agreement, other things 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 or reducing or waiving the length of some post termination restrictions or even offering some future consultancy work.
  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 think.  They often just want enough money to cover their costs until they can get another job. However, on other occasions the amount depends on what you are accused of and the strength of your defence.  The stronger your defence the less you may be minded to offer.

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 your employee’s arguments and obtaining a favourable Settlement Agreement within budget.

Please feel free to contact us if you need advice on the issues raised in this blog. You can contact your usual adviser or call 01737 854500 and ask for a member of the Employment Team. 


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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