Settlement agreement guide 

It is common to hear about large scale redundancies, or dismissals, in the news. Indeed, it is often the case that the mismanagement of a redundancy, or any form of dismissal, or grievance, can give rise to very serious claims within the employment tribunal. This settlement agreement guide runs through the basics of what you need to know. 

The employment tribunal, while similar to the county courts, does have some distinct, but very important differences. One of the most important is the rule on costs. You may know that in the county court the losing party will often incur the cost of the winning party. This is the exception to the rule in the employment tribunal and is generally reserved for cases where there has been unreasonable conduct during the course of the case. This means that, in the majority of cases, parties will pay their own costs, regardless of whether they have won or lost. While some awards within the employment tribunal are capped, many, including claims for direct discrimination, are not. This, coupled with the cost rules, means that cases are expensive matters for both parties. While there are various ways to settle cases, one of the most effective is through a settlement agreement. 

So what is a settlement agreement?

A settlement agreement, previously referred to as a compromise agreement, is, at its core, a written agreement between an employer and employee whereby the employee agrees to waive any claims they may have against their employer in exchange for compensation. It is in principle a straightforward process. However, as with anything straightforward, there are any number of issues that can arise to cause the matter to go awry. That is where the solicitors step in. A solicitor needs to be instructed to advise on the terms of a settlement agreement, it is a statutory requirement of a binding settlement agreement. Taking legal advice on the terms of a settlement agreement serves to ensure any employee that:

  1. You are being adequately compensated for agreeing to the terms; and
  2. You are not inadvertently waiving other entitlements that you had accrued during your employment or agreeing to onerous contractual obligations without understanding the implications.

What should a settlement agreement include?

The finalising of a settlement agreement is one of give and take. What is the employer prepared to offer? What is the employee willing to accept? There is an element of art, not science, in determining the final outcome of any agreement, but there are some useful factors that would influence a party’s negotiating position. I have set some out below:

  1. The process that has been followed – an unfair, or flawed process, will likely place an employee in a stronger position. Equally, an employer who has followed a fair and transparent process will be in a stronger position.
  2. Events preceding the settlement offer – was a grievance raised? Has it been investigated fairly? Is there a history of poor performance? The background to each case is going to impact the outcome. If there are potential claims arising from recent events, they will need to be settled in the agreement.
  3. The fallback position – do the parties want to continue working together? Is it time to part ways? Are they prepared to go to court? An employee can bring a claim as a litigant in person and effectively limit their legal costs. While an employer does not need to instruct a solicitor, there is often a higher degree of risk as they are defending a claim and so will usually instruct a lawyer to run the defence. 

While it can be somewhat stressful for parties to be engaged in settlement discussions, it is often with a view to resolving a matter amicably. That should always be the goals of the parties. When offering a settlement agreement, a party should give 10 calendar days to allow the other side to consider the terms, as per the ACAS guidance on Settlement Agreements.

How Moore Barlow can help

If you have been offered a settlement agreement, or would like assistance in drafting a settlement agreement then please feel free to contact the employment law team at Moore Barlow LLP.