Home / Employment Settlement Agreements

Employment Settlement Agreements

Employment settlement agreements, although primary used to terminate contracts of employment, are frequently the best way to resolve individual workplace disputes. Most often proposed by an employer, a “compromise agreement” may be offered as part of the disciplinary or grievance procedure, or as the result of mediation.

Typically, an employee settlement agreement will draw a line under a workplace dispute – or signal the termination of an employment contract – with the employee receiving a payment of compensation. In return, the employee waives their right to make a claim against the employer at an employment tribunal or at court for the specific dispute resolved by the agreement.

All agreements of this nature have to be voluntary and, in order for an employee settlement agreement to be legally binding, the employee must have received professional legal advice from a qualified independent advisor – such as a trade union official or settlement agreement solicitor. The cost of the legal advice is usually borne by the employer.

Employment settlement agreements offer advantages to both the employer and the employee. However, there are certain conditions that have to be met in order for the process to work satisfactorily. Therefore, whereas this article examines employment settlement agreements in general, it is advisable to speak with a settlement agreement solicitor to discuss your individual situation.

How Employment Settlement Agreements Work

Employment settlement agreements are agreements between individual employees and employers. The process for reaching an agreement is the same regardless of whether the dispute is resolved with the termination of an employment contract, or the employee continues working for their employer – for example, if the dispute concerns holiday pay.

The process can start at any time during a working relationship and does not necessarily have to be part of a disciplinary or grievance procedure. Often it will start informally with a discussion between an employer and employee about the possibility of a compromise agreement and, if both parties are prepared to consider the idea further, a written offer would follow outlining the terms of the proposal.

Usually employees are given a reasonable amount of time to consider the proposal and/or to negotiate revised terms. Once the final terms are agreed, any employee settlement agreement will usually cover the following:

  • The date employment terminates.
  • How much will be paid in lieu of notice and outstanding holidays (if applicable).
  • How much the settlement payment amounts to and when it will be paid.
  • That the employer will provide a professional reference if requested.
  • That the terms of the agreement will remain confidential.
  • That any proceedings already brought by the employee will be withdrawn.
  • That the employee´s legal costs will be paid by the employer.
  • If no agreement is reached, any discussions, offers or terms relating to the agreement cannot usually be presented as evidence in a subsequent employment tribunal or court hearing. The exceptions to this rule are when a proposed settlement is made “out of the blue” (i.e. the employee was not aware that a dispute existed), when a case has been brought due to “unambiguous impropriety” (blackmail, fraud, physical violence or unlawful discrimination), or when the proposed terms of an employee settlement agreement can be disclosed under §111A of the Employment Rights Act 1996.

What Happens if a Compromise Agreement is Breached?

A compromise agreement can be breached for a number of reasons. For example, the employer may fail to pay the amounts agreed in the settlement, or not pay them on time. An employee may disclose the terms of the agreement, or share them with somebody they were entitled to, who subsequently makes them public. In either event, the remedy is usually to claim breach of contract and damages at court.

However, there can be mitigating circumstances that would complicate the issue. For example, if an employee fails to adhere to the terms and conditions of their employment contract during the period of notice; or, if the employer has knowingly withheld information that would have influenced the terms of the agreement, a court would need to determine whether the breach of agreement was justified.

An Employee Settlement Agreement or Redundancy?

Although an employee settlement agreement could be used in a redundancy situation, it is not the same as a redundancy. In a redundancy situation – in which an employer has a diminished need for a certain number of employees or employee skillset – the employer is required to conduct a fair redundancy procedure before deciding which employee(s) to make redundant.

As an alternative to conducting the redundancy procedure, an employer may approach an employee with the offer of an employee settlement agreement. Employment settlement agreements of this nature usually have the incentive for the employee of a higher level of compensation than they would receive under a redundancy package or the ability to leave employment earlier. However, as with other types of employment settlement agreements, participation in the settlement is entirely voluntary.

Speak with a Settlement Agreement Solicitor for More Information

If you are an employee who has been approached with the offer of an employee settlement agreement, or an employer considering making the offer of a compromise settlement, it is in your best interests to seek professional legal advice from a settlement agreement solicitor.

A settlement agreement solicitor will be able to guide you through the process as it applies in your particular situation and ensure that every element of the agreement is included in the final offer. The solicitor will also be able to provide draft employment settlement agreements, check that they have been completed within the Code of Practise on Settlement Agreements and conduct negotiations or attend hearings as necessary to ensure the process works satisfactorily for all parties involved.