Settlement Agreements – Avoid the Pitfalls and Get it Right
Terminating employment can feel like a long, drawn out process and handling things incorrectly can lead to very costly tribunal claims. Settlement agreements can sometimes offer the solution. Managed well, they can support a clean break between employee and employer, allowing the employee to leave with dignity and respect and saving management time, relieving the headache and allowing you to focus.
So, what is a settlement agreement and how do you go about securing one for your business?
A settlement agreement is a voluntary, legally binding contract between an employer and an employee, usually used to bring an employment relationship to an end. In some cases, the employee will approach the employer. By signing a settlement agreement, the employee waives their employment rights and cannot take their employer to court or employment tribunal providing they are done correctly.
For the settlement agreement to be legally binding, it must:
Be in writing
Refer to a particular complaint or proceedings
The employee must have received advice from a relevant independent adviser, specifically on the terms of the agreement and the impact on their ability to take their employer to an employment tribunal
The relevant independent adviser must have a current contract of insurance or professional indemnity insurance
The agreement must identify the advisor
The agreement must state that the applicable statutory conditions Regulating the agreement have been satisfied
In normal circumstances, the employer will cover a contribution towards the cost of the legal advisor, especially if they are instigating the agreement.
ACAS have published their Code of Practice which outlines both legally required steps and also best practise in the management of settlement agreements to support employers.
In most instances the employer will approach the employee with a view to agreeing a settlement agreement. Care must be taken to ensure the process is handled correctly. Handled badly, employers can be caught out by employees seeking to include evidence as part of a claim that was part of a failed settlement agreement negotiation.
How can employers minimise the risks associated with settlement agreements to get the best outcome for their business?
Key tips:
Always seek advice from a qualified HR or legal advisor who will work with you every step of the way
Check with the employee before you get into any detail that they are prepared to engage in discussions about a potential settlement agreement.
Make it clear from the start of negotiations and in your correspondence that you intend to reply on section 111A of the Employment Rights Act 1996. This means that the offer made by the employer and any subsequent discussion about it may not be admissible as evidence in any subsequent unfair dismissal claim.
Where an existing employment dispute exists, you may rely on ‘without prejudice’ to prevent the content of offers and discussions from being admissible.
Make sure that you follow the ACAS Code of Practice and that you do not leave yourself exposed either on process or your approach.
Always make sure that you allow a minimum of 10 days from making the offer in writing for the employee to consider the offer. During that time, they will need to consult with their legal advisor in order for an agreement to be legally binding.
Do not say anything in the heat of the moment or anything which you would not be comfortable admitting to within a tribunal process.
Remember: Our team has extensive experience of securing settlement agreements for a range of reasons and we are on hand to support you, guiding you through the process. We will work with you to secure an agreement quickly with minimum disruption to your business.
Get in touch today on 01527 306 760 or info@dantonhr.com.