Settlement Agreements for Employers

When things are not working out with an individual employee, it is important to have a legal team available to discuss whether it is appropriate to have a “protected conversation” with that employee.  This type of conversation would enable your business to raise areas of concern and seek to reach a settlement to terminate their employment without the need for internal disciplinary procedures or an Employment Tribunal claim. 

What is a settlement agreement?

A settlement agreement (formerly known as a ‘compromise agreement’) is a legally binding agreement which is designed to enable an employee and their employer to settle any employment claims which arise under the employee’s contract of employment or under statute. It usually offers an ex-gratia payment in return for the employee’s agreement not to pursue any claims against the company in either a court or Employment Tribunal. We can advise on the potential offer to be made to the employee and we can assist with any subsequent negotiations.

We can assist your managers in assessing whether a settlement agreement is appropriate in the circumstances, help them prepare for the “protected conversation” meeting, draft the follow-up letter and produce any subsequent legally binding document.

Issues to consider

A number of issues will need to be considered prior to the settlement agreement being drafted. For example, the proposed timing of the termination, the reason for termination, and the value of the settlement package.

You are likely to want the employee to keep the terms of the agreement confidential, as well as potentially the circumstances which resulted in the agreement. Therefore, it is important that such provisions are appropriately drafted.  

There are particular requirements that have to be satisfied in order for a settlement agreement to be valid. One such requirement is that employees are required to seek legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal. Therefore, the employee will need to be advised that they will need to seek independent legal advice on the terms of the settlement agreement. 

When does a settlement agreement become legally binding?

It is important to note that until the agreement is signed by both parties it remains ‘without prejudice’. This effectively means that if the agreement is not signed it remains ‘off the record’ and the terms cannot be referred to in a court or Employment Tribunal, except in limited circumstances. Therefore, the agreement needs to be signed by both parties in order to become a legally binding agreement.