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Settlement Agreements: No Shortcut For Capability Procedures

In recent months our employment lawyers in Brighton and Hove have seen an increase in employees seeking advice about Settlement Agreements as an alternative to being placed on a performance review.

Acas make it clear that “problems in the workplace are usually best resolved in open conversations, including, as appropriate, through the use of performance management, informal and formal disciplinary or grievance procedures, workplace mediation or Acas conciliation.”

Although a Settlement Agreement can be a useful tool, they should not be used to replace fair processes.

In many cases, an employee has been given a Settlement Agreement before the company has embarked on a formal performance review, which would require them to take account of all factors to explain a drop in their employee’s performance or a failure to meet targets. This includes the company’s lack of resources and failure to offer training and support.

A fair performance review will involve making sure:

  • A proper investigation into the problem has taken place
  • Your employee has been made aware of the problem and been given an opportunity to improve within a realistic timescale, usually between three and six months
  • Your employee has been provided with appropriate support and possibly training
  • Your employee’s progress is reviewed during the review period

Stuart Markless meeting with a clientAt the end of this capability process, if goals and targets have not been met, the employer would still have to dismiss by serving notice or by paying their employee in lieu of their  notice. This means that any compensation offered will need to be in line with the salary and notice they would receive if they went through this process, otherwise there would be no incentive for your employee to sign the Settlement Agreement. This is particularly the case if your employee felt they could meet the agreed targets. Be aware that offering a Settlement Agreement without having started any capability process is likely to lead to a breakdown of trust and confidence.

If you are thinking of offering a Settlement Agreement to a poorly performing employee, it would be prudent for you to start the capability process first. If you defer offering a Settlement Agreement until after you have started a fair capability process your employee is more likely to accept this as a positive alternative. Also, the compensatory sum offered might only need to reflect notice and the remaining amount of time the performance process would have taken. This is because the incentive may be avoiding written warnings prior to any termination.

It is also a good idea to acquaint yourself with the Acas Guide on Settlements Agreements. This is helpful in providing guidance on how much time to give your employee to decide whether to accept and general guidance on how to offer a Settlement Agreement.

For further advice about how to manage a fair capability process or offer a Settlement Agreement please contact our Settlement Agreement solicitors on 01273 609911 or email

Martin Searle Solicitors, 9 Marlborough Place, Brighton, BN1 1UB
T: 01273 609 991

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