Settlement Agreements

20 December 2014
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A Settlement Agreement is a legal document that sets out the terms and conditions agreed between the employer and employee to end the employment relationship or settle a dispute which has the potential to end up at an Employment Tribunal.

It is most commonly used where the employee submits a claim for unfair dismissal and a settlement is negotiated to avoid a formal Tribunal Hearing. However, there is no legal requirement to be involved in disciplinary action or a claim against the employer.

Settlement agreement may be used at an earlier stage to resolve thorny issues that are disruptive
and damaging to the working environment:

– Performance issues that are not suitable for normal disciplinary action
– Relationships breakdown or personality clash
– Reorganisation resulting staff surpluses
– Attitude / behaviour which is damaging to customers relationships

The advantages of using Settlement Agreements for ending employment relationships which are no longer working are:

– To avoid wasting management time and effort on those thorny issues
– To avoid administrative and legal costs which result from defending a Tribunal case

The key features are:
Mutual consent – the parties enter the discussion in good faith with the intention to reach agreement, however, they are free to withdraw at any stage up to the final signing off.

Legal Agreement – the intention is to create a legal agreement which waives all rights and obligations relating to the employment relationship, including statutory rights and the option of tribunal hearing, in return for financial compensation.

Financial Compensation – the compensation package must be negotiated and will usually take a range of factors into consideration:

– Length of services
– Level of pay and benefits
– Notice period
– Contributory conduct
– Labour market conditions – redundancy settlements, employment prospects

Confidentiality – the agreement will include a confidentiality clause and the negotiations are ‘without prejudice’ basis – there is no admission of guilt or liability and if agreement is not reached the detail of the negotiation is not admissible as evidence in future legal proceedings.