Expert eye: A cost-effective way to end working relationships
Employment relationships do not always run smoothly. In some cases they break down, and when that happens, it may be necessary to bring an end to the working relationship between the employer and the employee.
A settlement agreement is one way of bringing an end to the relationship, writes Lesley Purveur, of Larken & Co Solicitors, of Newark.
We are seeing the use of settlement agreements more and more these days.
They offer both employer and employee a clean break, and avoid the lengthy time, cost and stress in dealing with a protracted formal complaint or tribunal claim, which is a real advantage.
So what exactly is a Settlement Agreement?
This is a legally binding contract between employer and employee that can be used to bring any type of workplace dispute, including redundancy or employment claim, to an end on mutually agreed terms.
It can be proposed by the employer or employee, but cannot include claims for personal injury, disputes over pension rights, or breaches of the settlement agreement itself.
The effect of a settlement agreement is that in return for payment, you give up your right to bring claims against your employer at an employment tribunal or court.
Typically, agreements contain details of:
The amount of compensation (which may include payments for redundancy, unpaid wages, bonus, payment in lieu of notice, and any holiday pay entitlement);
Restrictions on the employee’s future employment;
Confidential matters, such as trade secrets;
Any assurances given by the employer;
The reference that will be provided by the employer upon request;
If there will be an announcement to the emp- loyee’s colleagues/clients;
A mutual agreement that the parties will not make derogatory comments about one another.
An employee cannot be asked to, and is not allowed to agree to a waiver of a possible future claim for personal injury that neither they, nor their employer is aware.
Settlement agreements must comply with certain conditions to be legally valid.
They must be in writing, relate to a particular complaint, and the employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement.
Usually the employer makes a contribution towards the legal costs for obtaining the independent legal advice.
An employee does not have to accept a settlement agreement on the terms proposed, and sometimes it may be appropriate to negotiate.
How does an employee know whether the amount being offered is fair?
This is not an exact science, but since an employee is waiving their right to bring any claims, the amount offered should reflect the value of the claims that they are giving up.
Questions that may need to be considered include if there is any potential claim that an employee could bring against an employer; how likely is it that the claim would succeed at trial; and if successful, how much will an employee recover? The answers to these will affect the amount that an employee should expect in the settlement agreement, and which an employer ought to consider when making the offer in the first instance.
If an employee does not have a realistic claim, there is not much incentive for an employer to increase the settlement payment.
Settlement agreements are usually headed ‘without prejudice and subject to contract’. This means the employer and employee can discuss proposals freely and the document cannot be used in evidence in court or tribunal proceedings.
Once a settlement agreement is on the table, the employer likes to get matters concluded swiftly.
Once it has been signed, it becomes legally binding.
A settlement agreement can offer positives and negatives for both parties, but generally the positives do outweigh the negatives and offer a quick and dignified end to an employment relationship that is not working.
For more information, or employment advice generally, contact Lesley Purveur on 01636 703333 or lesley.pur veur@larken.co.uk
