How Do Employment Settlement Agreements Work?

12 July 2018

Employment Settlement Agreements work to resolve a workplace dismissal, dispute or grievance, without an employee making a claim against the employer. If done properly, a Settlement Agreement can be a win-win situation for those involved, as both sides avoid having to participate in legal action, but the employee will still obtain an acceptable resolution.

What are Settlement Agreements?

Settlement Agreements may be suitable when an employer is in a dispute with their employee, or anticipates a forthcoming dispute – for example, because they cannot progress or resolve the dispute without breaching the terms of the employee's contract. Instead of resolving the matter in a Tribunal or Court, the employer and the employee decide to resolve the matter through a Settlement Agreement.

A Settlement Agreement is a legally binding contract which offers the employee some kind of recompense for the damage that has been caused. Typically, this will be an amount of compensation and a good reference from the employer. In return, the employee waives their right to bring a claim against their employer.

The aim is that the employee obtains the same outcome as if a claim had been made in the Employment Tribunal. However, neither party has had to go through the stress and expense of an employment claim. The employer can also rest assured that the employee will not make a claim against them in the future, providing closure on the matter.

The Settlement Agreement Process

Usually, an employer will approach an employee with the suggestion of a Settlement Agreement, although it can be the other way around. If, as an employee, you are open to the idea of a Settlement Agreement, you should:

  1. Request the terms of the proposed Settlement Agreement in writing
  2. Show the proposed Settlement Agreement to an Employment Solicitor to check that the terms are fair. You should be allowed a reasonable amount of time to consider the agreement; ACAS recommends a minimum of 10 calendar days
  3. Negotiate the terms of the Settlement Agreement, or have your Employment Solicitor negotiate on your behalf. You do not have to accept the original terms and you are well within your right to negotiate a better deal, or even to refuse the agreement altogether
  4. If you reach an agreement that you are happy with, seek legal advice from an Employment Solicitor, if you have not done so already by this point. A Settlement Agreement will not be considered legally valid if you do not get independent legal advice before signing it

What if an Agreement is Not Reached?

If you sign a Settlement Agreement, then you must be aware that you are giving up your right to make a claim at an Employment Tribunal. But if you refuse to enter into a Settlement Agreement from the outset, or negotiations breakdown and you do not sign anything, then your right to pursue legal action still stands.

If you do end up going to an Employment Tribunal, then the discussions that you had with your employer while attempting to negotiate a Settlement Agreement often cannot be used. This is because the matter is usually discussed on a 'without prejudice basis' or as a 'protected conversation', meaning the communications you had while trying to resolve the dispute cannot be repeated in Court.

Even if you do sign a Settlement Agreement, your right to bring a legal claim may still stand if the agreement is found to be invalid, or your employer breaks the terms of the agreement.

Legal Advice for Settlement Agreements

If you would like to know more about how employment Settlement Agreements work, including whether it would be beneficial for you to enter into such an agreement, it is best to speak to an Employment Solicitor without delay. If you decide that you would prefer to make a claim, then for most Employment Tribunal claims you have just three months, less one day, in which to do this, meaning it is best not to hesitate when getting advice.

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