Is an employment settlement agreement right for me as an employer?

A settlement agreement is a formal, legally binding agreement between an employee and employer, typically at the end of a period of employment.

They can be introduced for a number of reasons but are typically a way of avoiding litigation at an employment tribunal following a dispute in the relationship.

Anything can cause a dispute to arise. However, settlement agreements are usually employed to resolve an issue over treatment, such as perceived discrimination in the workplace.

In exchange for (usually) payment of a sum of money or the cessation of a certain action or treatment, the employee typically gives up their right to take their case to a tribunal.

Why use settlement agreements?

Settlement agreements can provide an amicable solution for both parties once the terms of the contract are agreed.

Settlement agreements are legally binding contracts that resolve disputes between employers and employees, often without recourse to formal legal proceedings. Here are three reasons why they might be used:

• Confidentiality – Settlement agreements can include confidentiality clauses that protect both the employer’s and the employee’s reputations, particularly when damaging accusations have been involved.
• Finality – These agreements avoid the uncertainty, time, and expense associated with protracted legal battles. Both parties have the advantage of knowing exactly what the terms are, including any compensation, conditions, or actions required.
• Speed – Employers can keep ongoing costs to a minimum and employees can access compensation more quickly than through litigation.
• Cost – Settling disputes through a settlement agreement can be significantly less expensive than engaging in litigation, where legal fees can escalate quickly for all parties.

However, settlement agreements can also carry a range of potential issues which all parties involved should avoid.

Navigating settlement agreements

A settlement agreement may well be the best solution for an employer looking to end a dispute with an employee on fair and certain terms.

However, individuals are advised tread carefully when considering whether to accept one, so employers should be careful not to place undue pressure or influence on the employee.

All parties should ensure that any agreement fully addresses the employee’s issues so that it fully resolves the matter.

Avoiding ambiguity

A settlement agreement, as with any contract, should avoid ambiguity at all costs.

Using vague or ambiguous language can create legal loopholes or open the door to future disputes and unintended breach of contract.

All parties should be meticulous in drafting the agreement and, if possible, discuss potential scenarios and the potential for future disagreements before signing the agreement.

Key clauses must be defined by both parties and agreed upon, with the wording of the contract binding the parties to honour the agreement.

Anyone considering entering into a settlement agreement has to seek advice from a solicitor and have them review the precise wording of the contract before signing. An agreement will not be binding without independent legal advice.

Don’t forget the role of mediation

Less time-consuming and far more cost-effective than immediately resorting to litigation, mediation can either be used alone or prior to reaching a settlement agreement to avoid progression to a tribunal.

Mediation can be an invaluable tool in settling disputes amicably.

Discussions during mediation can help to progress a settlement agreement discussion.

Understanding your responsibilities

In addition to preventing litigation between two parties, a settlement agreement also creates obligations for those involved.

There is a significant emphasis on your responsibilities as the employer, whether that be making a payment or changing their working practices.

You should ensure you comply with these from the time that the agreement becomes binding.

Additionally, one or all parties may be prohibited from discussing details of the agreement beyond those involved.

Failing to enforce confidentiality clauses can result in reputational damage or breaches of trust, so you should be quick to ensure compliance.

Your employee may face significant penalties for breaching this agreement.

We can advise employers on how to approach settlement agreements with employees to address ongoing issues and avoid litigation at tribunal, while ensuring the agreement is fair and unambiguous.

To help you draft, review and enter into a settlement agreement, please contact us.