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In light of the recent changes to the Compromise Agreement which is now known as a Settlement Agreement (please refer to our recent Employment Law Update newsletter) we have put together a practical question and answer guide which explains more about using Settlement Agreements. You may have an employee with work performance or conduct issues but are concerned about whether instigating a formal procedure will lead to a real improvement, and the time that will be involved. You may also be concerned about the risk of tribunal claims. This information guide is aimed at helping to answer some of your questions.
Q. What is a Settlement Agreement?
A Settlement Agreement is a legally binding agreement between you and your employee under which he/she agrees to waive rights to file tribunal claims, usually in return for a financial settlement and their leaving your employment.
Q. When and why might an employer use a Settlement Agreement?
Settlement Agreements can be used in a variety of situations. They are a way of terminating an employee’s employment without having to undergo a potentially long and difficult disciplinary or capability process, and where a quick exit is preferred.
Q. Who will pay for the legal advice that the employee must take in order for a Settlement Agreement to be binding?
In the vast majority of cases, the employer will contribute around £250-£500 plus VAT towards the employee’s legal fees.
Where it is very much in the employee’s interests to sign the Agreement (say, for example because you have a very strong case to dismiss them if they don’t sign the Agreement) then you may take the view that you will make no contribution.
Q. What if the employee will not agree to the Settlement Agreement offered? The employee may not sign the Agreement that you have offered or make an unacceptably high counter-offer perhaps where they have been advised not to sign by their adviser.
If you do not reach agreement, the employee will remain in your employment (unless their employment has already terminated) and will retain any rights to make a claim at an Employment Tribunal where they may seek to use what is said in settlement discussions.
Q. Can I dismiss the employee if they do not accept the Settlement Agreement?
If your employee rejects your offer of a Settlement Agreement and you dismiss them prior to the disciplinary process, this will constitute improper behaviour and will almost certainly result in this evidence being used against you at an Employment Tribunal.
Q. How much should I pay the employee?
There is no prescribed sum. In effect you are paying the employee not to file a tribunal claim (and usually leave your employment) and so the merits of any claim and the award the employee is likely to receive might dictate your offer. It is advisable to seek advice on this.
Q. When is it risky to offer a Settlement Agreement?
There are situations where it would be risky to offer a Settlement Agreement. For example, if you offer one prematurely which the employee would consider to be out of the blue. These types of conversations are usually following discussions that have already been held with the employee about the organisation’s concerns.
You risk all off-the-record discussions and ‘without prejudice’ correspondence concerning the Settlement Agreement being raised in a formal grievance against the company. Also, if your employee alleges that the offering of a Settlement Agreement is a discriminatory act, then the conversations and documents issued will not be protected and could be used as evidence at an Employment Tribunal.
Additionally, there are many other types of claims which would result in an automatic unfair dismissal claim such as whistleblowing or reporting a health and safety issue. For more information you can refer to the ACAS Guidance on Settlement Agreements which sets out examples of inappropriate behaviour which would entitle an employee to refer to the conversations and any supporting documents.
Q. What are the benefits of using Settlement Agreements?
- You no longer have to feel cloak and dagger about having difficult discussions with employees – it is actually ok to have these conversations.
- (Relatively) conflict-free termination of employment in what could be difficult circumstances.
- Reduces the time and stress of managing difficult situations through a grievance or disciplinary process.
- Minimises the impact on a team where managing one person over a long period of time could reduce team productivity or affect employee morale.
Q. What are the disadvantages?
- Can make it too easy for managers to terminate employment without ever trying to manage the situation that has arisen professionally and fairly.
- Can create an expectation amongst employees that they will always be paid off if there is a dispute. As a result, employees will not seek to resign their positions if they are unhappy or will react very strongly if you seek to dismiss without suggesting a Settlement Agreement route.
- Effectively, you are paying staff off in lieu of dismissing them at no cost other than management time and perhaps also notice pay.
- How will you get your relationship back on track if Settlement Agreement negotiations break down?
Using Settlement Agreements – TOP TIPS
- Offer the employee the option of being accompanied at meetings.
- Give them the time to think things through – guidelines advise at least 10 days, however through discussions with the employee, you can agree alternative timescales.
- During your discussions, don’t be too pushy or offer an ultimatum. This is a sure-fire way to jeopardise your ability to keep the conversations you are having with your employee out of the Tribunal.
- When drafting the Agreement, don’t be tempted to set out all possible claims – be specific about what you want to protect yourself from. This will give your Agreement the best possible chance of being legally enforceable.
- Don’t forget that the success of the conversations you have as part of a Settlement Agreement is dependant on reaching agreement with your employee. So plan your conversations carefully and don’t go overboard with the legal jargon and formality.
- Whilst instinct may tell you to keep these conversations off record, actually putting them in writing can help clarify matters and help assert your position clearly.
- Be clear on how you propose to manage the discussions and the timeline of the process so that expectations are set all round.
It is advisable to seek our advice if and when your organisation are contemplating entering into discussions with an employee, to help you navigate your way through the process. Do keep an eye out for further newsletters for the remainder of 2013.
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For guidance and advice and to arrange for a Settlement Agreement to be drawn up,
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