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What happens if the terms of a Settlement Agreement are breached?

Settlement Agreements can resolve disputes but sometimes the parties do not stick to the terms. So, what happens then?

Whilst Settlement Agreement’s are becoming increasingly popular, what is the recourse, if the terms of the Agreement are breached?

It is worth noting, that whilst Settlement Agreement’s are entered into to end an employees’ employment, any breach or dispute about enforcement, will probably be dealt with in the civil courts, as opposed to an Employment Tribunal.

It is worth bearing in mind that the terms of a Settlement Agreement vary in importance, as such, it will depend on the term breached, as to what remedy you are able to seek. For instance, a failure to pay the settlement monies due would be a more significant breach then a failure to return company property by the specified date.

The most common breaches are:

1. Failure by the Employer to pay the sums due

In this situation, most employees think that they are then free to pursue the claims they waived under the agreement e.g. for unfair dismissal or discrimination. However, whether you can pursue such a claim will depend on the wording of the settlement agreement.

Normally, payment of the settlement sums is not conditional upon the waiver of rights. This means that the agreement would still be binding on both parties, but the employee would be able to pursue a claim for breach of contract, in respect of the money due. The court this would need to be issued in, depends upon the amount owed. It is advisable to seek legal advice before issuing a claim, to ensure the claim is issued in the correct court. There is also a pre-action protocol which needs to be followed for debt claims, which means certain steps will need to be complied with before a claim can be issued in the court.

2. Breach of an Employee warranty

A warranty is a promise made by one party to the other under the terms of the agreement.

Settlement agreements include various employee warranties, such as, the return of company property, deletion of confidential information and a promise that they have not already breached their employment contract.

If an employer discovers, after agreeing the settlement agreement, that the employee had breached the terms of their contract of employment, and therefore, given a false warranty, they would be entitled to withhold payments due under the agreement.

This is because the agreement usually confirms that the payments are conditional upon this warranty, which means the payments could be withheld.

If an employer discovers the breach, after payment has been made, then they would have to make a claim for breach of contract to reclaim the sums paid. However, any claim would need to be made in the correct court and the pre-action protocol complied with, as above.

3. Breach of a Post-Termination Restriction

Occasionally a settlement agreement will confirm that the employee’s restrictive covenants, contained in their contract of employment remain enforceable or include new restrictions.

Any breach of the restrictions would allow the employer to issue a claim for injunctive relief, to stop the employee from continuing to breach the terms, and/or damages.

If an employee considers that the restrictions would prevent them from obtaining new employment, they should seek to agree to have all or some of the restrictions removed from the settlement agreement, before signing the terms. It will be extremely difficult to argue that the restrictions are not enforceable once the agreement has been signed.

If you are an employer or an employee and require specific advice in relation to a settlement agreement, please contact us.

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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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