Settlement agreements can be a useful, and mutually beneficial, way of bringing a contract of employment to an end or resolving a dispute with an employee. Settlement agreements provide the opportunity to control a situation and draw a line under an issue at an early stage, avoiding the inconvenience and cost of going to an Employment Tribunal, giving you more time and resources to devote to your business. However, to get these potential benefits it’s important to take a comprehensive approach. In this post, we look at some of the issues employers should look out for when considering use of a settlement agreement and suggest five tips for making sure your settlement agreement is effective.
The timing
The first thing to think about is: when is it best start a without prejudice discussion or protected conversation? This will vary depending on the circumstances of each case. However, it is important to take account of all relevant factors. This will include both the practicalities of your business (i.e. what work, if any, do you need the employee to complete) and also factoring in the legal risks to your business of not being able to successfully negotiate a settlement. If no agreement is reached, considering what grounds you would have to commence formal action against an employee is also something it is important to consider. If there is, e.g. a serious disciplinary allegation that could be pursued against the employee, is it better to go through that process before seeking to engage in a protected conversation, so as to strengthen your bargaining position? While cutting straight to the chase is often the way to go, sometimes taking formal steps to give yourself a strong negotiating platform is preferable.
Make it the Employee’s Decision
Employees may turn down your offer of a settlement agreement for a number of reasons. It may be that they aren’t ready for the employment relationship to end or they may consider the proposed terms of the agreement as unsatisfactory. Accordingly, if your desired option is to have the employee exit the business under the terms of a settlement agreement, taking time to consider how to have the employee agree that is the best option is invaluable. Usually, an offer of a compromise agreement is made as an alternative to some type of formal process (e.g. disciplinary, performance management, etc.). Highlighting to the employee what formal steps will be required if no agreement can be reached may focus their mind on the benefits of reaching an agreement. In doing this, you do need to exercise some caution, as you would be unable to state that a definite decision to terminate employment will be made if the formal process is adopted: any such decision will be subject to a fair procedure being followed. However, often the mere requirement to engage in a formal process can persuade an employee reaching a settlement on a without prejudice basis is a preferable option.
Be Careful How You React
If the employee refuses your offer of a settlement agreement, you must be careful how you react to this situation. If you threaten to dismiss them, prior to the beginning of a proper disciplinary process, this may constitute a fundamental breach of contract and as a result, this evidence could be used against you at an Employment Tribunal. In these circumstances the employee could raise a grievance against you citing that the employment relationship has broken down. If the grievance is not upheld and the employee resigns, this could be grounds for a constructive dismissal claim. Ensure discussions of a settlement agreement are kept non-threatening and constructive, with your role being to persuade the employee that this is the best way forward for both parties.
Make a Reasonable Offer
You solicitor will be able to assist you in deciding what a fair settlement offer would be. How much you should offer an employee will very much depend on the particular circumstances. However, putting forward an unreasonable offer can derail the process permanently. Factors that will be relevant include the employee’s length of service, the strength of any “case” you have against the employee (i.e. how likely is it you could fairly dismiss them in the absence of any agreement), the employee’s salary, the employee’s job prospects and the commercial costs (including potential legal fees) of becoming involved in a protracted dispute with the employee. It is therefore important that you seek specialist legal advice before you make the offer of a settlement agreement to an employee.
Include a Confidentiality Clause
A confidentiality clause is a very important part of any settlement agreement. This clause will ensure both parties are under a legal obligation to keep details of the settlement agreement and dispute under wraps. In particular, you are unlikely to want an employee to disclose to their colleagues what monies they received by way of a termination payment, as this may create a culture of employees seeking pay offs in the future. You may need to allow some leeway in this clause, to allow the employee to discuss matters with their spouse or immediate family.
Where the employee has an interest in confidentiality, you have to make sure you do not over promise – you have little control over what other employees or third parties divulge and you can only promise a reasonable effort to keep things quiet.
Furthermore, you may also wish to include a clause preventing the employee from making derogatory remarks about you or your business. Your solicitor will be able to draft, negotiate and advise on these clauses to ensure you get the best out of any settlement agreement offered.
For more advice and guidance about settlement agreements, head over to our dedicated settlement agreements page for further information, or contact us today.
Contact our Settlement Agreement Solicitors Glasgow
If you require advice or assistance with a settlement agreement, please get in touch. We have years of experience in dealing with a variety of circumstances where settlement agreements have been used, and can help you feel confident you have a watertight agreement in place. Contact our employment law solicitors in Glasgow for advice on Settlement Agreements or any other employment issue you may have, on 0141 530 7465 or complete an online enquiry form and we will get back to you.
