Real Employment Law Advice

Resolving disputes with a Settlement Agreement: What do you need to know?

Anyone who works with people, either in HR or management, will know that there are a variety of issues that can arise over time. From allegations of bullying and harassment to poor performance and everything in between, there are a myriad of disputes that occur. Some are easily resolved, and others drag on a lot longer, causing endless headaches and potential legal risks to the business.

On occasion when a problem arises with an employee it can become very drawn out over time, or from the outset it will be apparent that there is no possible resolution that can be reached which will enable the employee to remain in your employment.

Either way, in these scenarios it will be appropriate to give consideration to resolving the matter by way of a Settlement Agreement.

What is a Settlement Agreement?

A Settlement Agreement is a contract between you and an Employee within which you are offering a sum of money, compensation, in return for them agreeing not to pursue their employment rights in the Employment Tribunal or Court.

Usually, it will also mean that you are agreeing to the end their employment, but not always.

In order to be legally binding a Settlement Agreement must:

1) Be in writing

2) Relate to a particular complaint or proceedings;

3) Include the employee’s legal adviser’s name (they are required to obtain legal advice about the terms in order for it to be legally binding);

4) State that it meets the necessary legal conditions regulating Settlement Agreements.

The pros of resolving disputes with a Settlement Agreement are:

  1. Saves HR and Management time.
  2. Reduces the possibility of widespread dissatisfaction or disruption among the workforce. 
  3. Eliminates the uncertainty and risk that an employee will make a claim in the Employment Tribunal.
  4. Maintains confidentiality and preserves the business reputation.

The cons of resolving disputes with a Settlement Agreement are:

  1. Can create a culture where a Settlement Agreement becomes an expected outcome of any grievance or dispute.
  2. Can lead to managers taking the ‘easy’ route of a Settlement Agreement rather than getting to the root cause of an issue.
  3. Can be costly depending on the nature of the dispute and ‘value’ of any claims the employee may have.
  4. Employees may perceive that there is a culture of ‘cover up’ in the business as Settlement Agreements and confidential and normally include clauses preventing employees from saying anything derogatory about the business. 

How can a Settlement Agreement go wrong?

  1. Not handling the ‘without prejudice’ conversation appropriately.

We often see scenarios where employers have attempted to make a confidential settlement offer but have mixed the conversation with discussions that would be deemed to be open discussions and therefore admissible as evidence.

It is therefore important to have a clear divide between discussions so that there is no doubt when a settlement offer is being made on a ‘without prejudice’ basis.

  1. Not getting advice on the content of the Settlement Agreement.

Employers sometimes attempt to save money and cut corners by using an old template or downloading something off of the internet. This can result in the Settlement Agreement not being legally binding which means the employee can still make a claim in the Employment Tribunal.

One of the benefits of a Settlement Agreement and paying out ‘compensation’ to the employee is the terms contained in the agreement which protect confidentiality, reputation and prevent disputes from continuing to take up management time, and therefore it is important that the terms of the agreement are drafted to incorporate these points.

  1. Employees become aggrieved at the fact that an offer has been made.

Sometimes employees can take offence and become aggrieved by the fact that an offer has been made and can seek to use this in a grievance or to allege constructive dismissal. This is especially the case if the offer comes without the employee being aware of any issue.

There is no real way to prevent this from happening, but what you can do is ensure that you are making the offer in an appropriate situation, that you follow the correct process and issue a letter at the same time that you verbally make offer, setting out clearly why the offer is being made, that the employee is under no obligation to accept and that if they choose not to accept the offer it will have no impact on any future decisions you make about their employment. 

Settlement Agreements, when used appropriately can be an excellent tool in your dispute resolution armoury.

If you have any questions about Settlement Agreement or would like help in preparing and agreement or in guidance for the process, please do not hesitate to contact us we would be very happy to help with this. Head office is 01983 897003 and you can speak directly to one of our friendly solicitors.

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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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