Settlement Agreements – Business

Settlement Agreements are often used when employment relationships are coming to an end by mutual consent. Settlement Agreements represent the only route whereby an employer can pay compensation to an employee and guarantee that the employee will not take the money and still bring a claim.

Employees are usually paid a sum in addition to their strict legal and contractual entitlement as an incentive to sign away their rights to bring a claim.

All Settlement Agreements are written and should be offered on a “Without Prejudice and Subject to Contract” basis. This means that if the parties do not reach a settlement, then technically speaking, neither party should be able to refer to the fact that a settlement was proposed should there be any subsequent legal proceedings.

There can be issues for employers in broaching the subject of a possible leaving deal. The government introduced “Protected Conversations” which are designed to enable employers to have a ‘confidential’ or without prejudice conversation with employees to talk through possible leaving options. However, the rules applied to these confidential discussions are not straight forward and don’t apply to all situations. For example, if an employee asserts that the reason for offering the settlement proposal is motivated on discriminatory grounds, then there is a risk that the ‘confidential’ nature of those discussions can be set aside, and an employer can lose the protection which was afforded.

Likewise, if an employer uses undue duress to try and pressurise an employee into accepting a Settlement Agreement, again the confidentiality intended can be lost. An example of such duress could be the employer stating to an employee who is facing disciplinary action, “if you don’t accept the deal you will be dismissed for gross misconduct”.

We offer advice to employers about how to approach the subject of a potential Settlement Agreement and when and how to conduct a Protected Discussion. We will also draft the actual Settlement Agreement and a S111A covering letter for employers to use.

As well as a financial clauses, Settlement Agreements can also incorporate other terms which can be equally of value and importance to the employer. Such clauses can include provisions to ensure confidentiality, clauses to ensure the employee does not make any disparaging or derogatory remarks, and specific warranties to ensure the employee returns all property belonging to the employer. If placing an employee on garden leave, the Agreement can incorporate the conditions of garden leave, and can also be used to either reiterate post termination restrictive covenants.

For a Settlement Agreement to be enforceable, an employee must obtain independent legal advice, and the adviser will be required to sign an Advisers Certificate which forms part of the Agreement. Employers will be expected to make a financial contribution towards the employees’ fees for obtaining such legal advice.

If you feel a Protected Discussion is a route you wish to explore as an employer, or you require a Settlement Agreement to be drafted, contact a member of our Specialist Employment Team.