Smooth the path when it is time to part company

Oct 30, 2021

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Nikita Shergill, an employment solicitor at Wilson Browne Solicitors, explains why a settlement agreement can be the answer in order to avoid costly and time-consuming tribunal proceedings.

FURLOUGH has ended and many employers are still feeling the repercussions of the pandemic. On the one had many businesses are struggling. On the other, it is widely accepted there are more jobs than applicants.

But what do you do if you need to downsize? Or, have ‘issues’ with an employee that need resolving without lengthy processes.

A Settlement Agreement (formerly called a compromise agreement) may be the answer. This is a legally binding agreement between an employer and an employee who agrees not to bring a tribunal claim against the company, in return for financial compensation.

Nikita Shergill

Settlement Agreements are typically associated with ending employment (issued either shortly before or after the employment has ended) although in some circumstances, they can be used when employment is going to continue.

To be binding, the employee must get independent legal advice before signing and they must be allowed to choose their own legal advisor, and employees are entitled to the following which will always be payable on termination even without a Settlement Agreement:

  • Notice pay;
  • Payment for accrued, unused holidays;
  • Any other contractual benefits;
  • The employee must receive a severance payment as compensation for their loss of employment, tax free up to £30,000;
  • It is customary for employers to contribute towards the cost of the employee’s legal advice (typically £350 to £500 + VAT).

In redundancy situations, an employee’s statutory redundancy pay must be enhanced to act as sufficient consideration (or financial incentive) to take the Agreement.

The benefit of a settlement agreement is the certainty of knowing that a tribunal claim is not on its way, which alleviates the stress, strain, costs and management time that goes into fighting them.  Also, it will include a provision to protect the company’s confidential information, which given that tribunal judgments are published online is a great way of avoiding bad publicity.

These conversations should be protected and approached on a “without prejudice/off the record” basis in accordance with s111A of the Employment Rights Act 1996. However, this protection does not blankly apply to all situations and all tribunal claims.

Having this conversation with an employee makes your intentions clear and it is difficult to rectify once the horse has bolted, so seek specialist advice on how to approach the topic with your employee(s).

What if the employee says no?

Employees do not have to agree. If this happens, the company would ordinarily continue with the process it had already started, for example redundancy process, formal performance management etc.

In the worst case scenario, the employee may decide to bring a tribunal claim if their employment is terminated without a Settlement Agreement. But all is not lost. if it is a claim for ordinary unfair dismissal and on the proviso that those settlement discussions were protected, the employee should not be able to rely on your “off the record” conversations as evidence of their claim.

Wilson Browne Solicitors can take the stress away from you by drafting a bespoke agreement to afford your company the utmost protection from all employment law angles.

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