How can Employers use Settlement Agreements to their advantage?
Written by Leah Waller
Senior Employment Consultant Solicitor
Settlement Agreements can be used to settle a dispute between an Employer and their Employee and can also bring an end to any employment relationship, although it does not necessarily have to.
A Settlement Agreement has the advantage of bringing the potential claims to a close, giving the Employer the certainty that legal proceedings will not be pursued, as well as offering a speedy resolution for those involved. This can be of great benefit to avoid lengthy disciplinary or performance management procedures.
Settlement Agreements and their terms are confidential and so whilst in negotiation, as well as following their signature and conclusion, the terms of the Settlement Agreement and the circumstances leading up to the Settlement Agreement remain confidential.
Conversations in relation to Settlement Agreements must be undertaken in the right way or else they will not be covered under the legislation and the conversations will not be protected – meaning that they are not confidential and can be discussed in open correspondence or with other parties and potentially used in any legal proceedings.
So, how much should be offered under a Settlement Agreement?
There is no ‘right’ amount to offer under a Settlement Agreement, no magic figure or calculation. This will all depend on the circumstances leading up to the Agreement being offered, why the Agreement has been offered, the potential claims that the Employee has against the Employer (and possibly any Group Companies, Associated Companies and/or other Employees that the Company could be liable for).
Another consideration that is important for many Employers is the negative publicity that may be caused if a matter is not concluded under a Settlement Agreement and is therefore not confidential.
The Employee may be in a weaker position, and have less leverage over the Settlement amount, if they are under a Performance Management Plan, Disciplinary Procedure or similar, but again, this will all depend on the circumstances of the individual case.
What are the Benefits?
A Settlement Agreement can provide a speedy conclusion to issues in a working relationship or conclude an employment relationship quickly and satisfactorily for all parties.
A Settlement Agreement can also reduce the amount of time, especially management time, in dealing with lengthy Grievances, Disciplinary Procedures, Performance Management Procedures and Tribunal proceedings and the stress and costs involved in dealing with these.
A Settlement Agreement allows both parties to move forward whilst maintaining some level of dignity, the Employee is able to move on with some compensation and possibly even a reference, and the Employer is able to continue with their business and move forward without worrying about a pending Tribunal claim.
What are the Drawbacks?
The biggest concern for many Employers when offering a Settlement Agreement is that by making an offer they are accepting fault for something that they may not believe has happened or offering a sum that may never need paying as the Employee would never be successful in a claim. However, this is likely to be outweighed by the advantages above and the certainty that the Employee is waiving heir rights to bring any claims, therefore saving the Employer time and money in dealing with any prospective claims.
If Settlement discussions are not successful and have not been concluded correctly then the Employer runs the risk of the conversations being used against them in legal proceedings.
A Settlement Agreement negotiation that is not handled correctly can make a situation much worse and cause increased animosity with that Employee and potentially amongst the wider workforce.
It is usual practice (although not obligatory) for the Employer to contribute towards the Employee’s legal fees in obtaining advice on the Settlement Agreement as the Employee MUST receive advice from an independent legal adviser in order for the Agreement to be legally binding.
However, where the Employee wants to negotiate the amount offered in the Agreement, these costs will be paid by the Employee directly as the Employer’s contribution is likely to be strictly limited to costs incurred in advising on the Settlement Agreement and providing the Adviser’s Certificate.
What if the Employee does not sign?
If the Employee does not accept the Settlement Agreement, or the Settlement amount cannot be agreed, then the Employer can continue with disciplinary/performance management procedures and ultimately continue their process to remove the Employee from their business. However, without a Settlement Agreement in place the Employer is at risk of a potential claim from the Employee where the dismissal is not conducted correctly. Additionally, where Settlement Agreement discussions have not been conducted correctly, these discussions may form part of the Employees claim against the Employer.
Offering a Settlement Agreement will not be right in every situation but can be extremely advantageous in the right circumstances.
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