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Settlement Agreements: Why It Pays To Instruct A Specialist Employment Lawyer

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A Settlement Agreement is a legally binding settlement, between an employer and employee, usually offered shortly before or after the termination of the employee’s contract. These used to be known as Compromise Agreements. Employees are required to waive their rights to bring legal claims such as unfair dismissal or workplace discrimination in return for an agreed sum of compensation. In certain circumstances, protected conversations apply to ensure negotiations can take place which can’t be brought up in a Tribunal similar to the “without prejudice” principle.

Used in conjunction with a fair process, Settlement Agreements can be a useful tool to end the relationship amicably providing peace of mind that the business is protected from future claims and enabling the employee to make a dignified exit.

Unfortunately, many HR managers do not use Settlement Agreements in this way and find their business exposed to claims of unfairness and/or discrimination which may require paying much more compensation than was ever intended.

If you are considering offering a Settlement Agreement to an employee, the starting point should always be the Acas Code and Guidance on Settlement Agreements. These set out clear advice on how Settlement Agreements should be presented, the time scales for acceptance and examples of how to offer them to avoid allegations of “undue pressure” or “ambiguous impropriety”. This could lead to the business being unable to rely on “protected conversations” so that the manner in which the Settlement Agreement was offered could be scrutinised by the Employment Tribunal.

Recently we dealt with an employee who had been off sick due to a bi-polar episode and her fit note stated she was “in crisis”. She attended what she thought was going to be a back to work meeting and was handed a Settlement Agreement and was dismissed on the spot. The reason given for her dismissal was redundancy yet her role had not been included in a recent restructuring exercise. The HR Director wrongly assumed that because she had less than two years’ service she could not take action. As this appeared to be a disability related dismissal, we helped her raise a grievance about the way she had been dismissed. The employer could not rely on what they thought would be a protected conversation as they were breaching equality law.

It is also important to obtain advice about how much compensation to offer. We often advise employees not to sign their Settlement Agreement as the compensation offered amounts to less than they would receive if they stayed at work and went through a fair redundancy/capability/disciplinary process. In addition, there would be no guarantee that the outcome would be their dismissal.

In this situation, we assist employees in issuing a formal grievance about the fact a fair process had been circumvented and that the attempt to terminate their employment contract in this way is evidence of unfair treatment. Where the employee has protected characteristics, this can give rise to claims that they had been treated less favourably due to their disability/race/sex/age/religion/sexuality etc. This enables us to negotiate much higher compensatory payments.

Good employment relations rely on employers and employees choosing professionals with the relevant expertise to provide fair and accurate legal advice about offering or accepting a Settlement Agreement. The reputational and financial risk when employers get this wrong, far outweigh the cost of specialist employment law advice.

Employees benefit from specialist employment law advice when considering whether to enter into a Settlement Agreement to ensure that they secure a fair amount of compensation based on the strength of their case and the amount of money they could be awarded if they took their claim to the Employment Tribunal. This might mean the employee having to fund legal costs over and above their employer’s contribution but this is usually reflected in much higher compensatory awards.

Instructing a specialist Settlement Agreement lawyer ensures that disputes or potential claims can be settled amicably, efficiently and fairly.

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Sophie Williams

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