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The Five Benefits of Offering your Employee a Settlement Agreement

Resolving issues at work with a Settlement Agreement

Settlement Agreements have recently become increasingly popular with employers when attempting to handle a dispute with an employee.

I set out below the five benefits of offering a settlement agreement:

1. It will cost you less in the long run

The costs incurred in a settlement agreement are usually significantly lower than those incurred in defending an Employment Tribunal claim. Further, you have some control over the compensation or ex-gratia element of any settlement, which will not be the case if an Employment Tribunal find in favour of an employee and award compensation.

2. Certainty of the outcome and confidentiality

A settlement agreement provides the employer with certainty that the employee will not pursue any claims against the company. This offers peace of mind to the employer. Further, if an employee entered into a settlement agreement and then pursued a claim, they would be in breach of the agreement. Most standard agreements protect the employer financially if a claim is pursued.

The terms and circumstances of the agreement are confidential once the agreement is signed providing reassurance that what is discussed will remain between you and the employee only.

3. You save a lot of time and can resolve much quicker than in an Employment Tribunal  

Most settlement agreements can be agreed within a few weeks.

An Employment Tribunal claim can typically take 12 months to conclude. Further, if you must start a formal process, for example, disciplinary, capability or redundancy, this is often time consuming and a settlement agreement, may avoid the need to start any formal process.

4. ‘Without Prejudice’ protection so that your conversation can not be used against you

In general, the settlement discussions and offer are without prejudice, which means that until the agreement is signed it cannot be referred to in any subsequent Employment Tribunal claim or proceedings.

This means that the businesses position has not been prejudiced, should the employee refuse to sign the agreement and you would be able to continue whatever formal process is necessary.

There is a caveat to this in respect of claims for discrimination, and if the employer behaves badly during the settlement discussions. It is therefore extremely important to seek advice before you start negotiations and discussions with an employee.

5. Protect yours and your business reputation by preventing the employee from making adverse and derogatory comments

It is standard for any settlement agreement to include a clause confirming that the employee cannot make adverse or derogatory comments about the business. This ensures that your business is protected against reputational damage. Further, the employee would be in breach of the agreement, if you are able to prove they have said anything unsavoury about the business.

Overall, a settlement agreement has many attractive features. If you require any further assistance or advice, please get in touch. We can assist all aspects of the negotiation process, including how to have a protected conversation, as well, as drafting the agreement.


PODCAST: A speedy resolution to disputes and difficult situations with employees: Episode 95

PODCAST: Settlement Agreements: Episode 28

NEWSLETTER: Settlement Agreements & Protected Conversations

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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