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    Home » Employment Law » Settlement Agreements

    This guidance is not a substitute for independent legal advice.  It is for employers and employees/workers who are considering offering or accepting a settlement agreement to formally resolve potential employment disputes prior to the involvement of ACAS in Early Conciliation and/or an Employment Tribunal claim.   

    In this article, references to the employee will include workers. 

    Things to think about: Employer 

    If you are considering offering a settlement agreement, there are a number of things that you would need to consider:  

    1. Is there an existing dispute to settle?  If you offer a settlement agreement to an employee when there is no pre-existing dispute, that could cause its own problems.  This is because you would not be able to offer it on a “without prejudice” basis, which turn your offer of settling a dispute into the dispute itself – you could effectively be giving the employee notice (if the settlement agreement provides a termination date), or possibly grounds to resign and claim that they have been constructively dismissed.  If there is no existing dispute, you may want to consider the risks of either raising one, or initiating “pre-termination negotiations” with the employee in line with s.111A of the Employment Rights Act 1996. 

    2. What are you prepared to offer?  Your offer to the employee should set out at least the contractual and statutory minimum that the employee is entitled to.  You will also need to offer payment towards the employee’s legal costs (usually in the region of £350 to £500 plus VAT).  How much extra you offer to settle the dispute will usually depend on what the dispute is, how strong the employee’s position in that dispute is, and how much management time you want to spend on dealing with it.  The more you offer, the more likely it is that the offer will be accepted and with minimum of negotiation of terms.  If you prefer to spend less money on settling the dispute, then you may have to spend more time dealing with the negotiations on terms, or you may find that the offer is not accepted and you have to consider alternatives.   

    3. What outcome do you want (beyond settling the dispute)?  Do you want to reinforce (or introduce) any post-termination restrictions to protect your business?  Do you want to minimise the chances of negative publicity?  Do you want to prevent the employee from taking sensitive information with them (they should not be doing so anyway, but you may want to strengthen the contractual obligation)?  Is there an additional issue that may not currently be in dispute, but which you think may become one and which you want to be included in the settlement?  Your solicitor can advise you on how to ensure that you are likely to get the right outcome.    

    4. Consider timescales; when does the agreement need to be completed?  If the employee is leaving employment, most employers prefer to have the agreement fully executed prior to that, as it means that the employee will not have a right to claim unfair dismissal before the agreement is entered into. In most cases, this will not make that much of a difference, but there are some situations where it might affect relative bargaining power. Whenever you want the agreement to be finalised, you will need to give the employee a reasonable timeframe (and potentially time away from work) within which to find a solicitor to advise them, obtain that advice, conduct negotiations on terms, and then sign the agreement.  What is reasonable will depend on circumstances.    

    5. Remember to comply with your obligations under the agreement.  Most of the obligations under the agreement will be for the employee, but there will be obligations on you as well, not least the obligation to pay what has been agreed.  For example, if the employee has been on garden leave during the relevant period, then they are likely to still have belongings on-site that they will want to have back.  You will need to consider the best way of dealing with this, especially if there are other employees leaving at the same time, for example through redundancy; how will you manage that many employees coming onto site to collect their belongings? 

    6. Consider the impact on remaining staff.  The process of an employee leaving under a settlement agreement can be difficult for all concerned, and can lead to additional work and maybe even bad feeling for remaining staff.  You may want to consider agreeing an announcement with the departing employee to give to their former team as part of the settlement agreement.  You could devote additional management time to try to ensure that remaining staff are not overwhelmed with work. 

    Things to think about: Employee 

    1. Keep calm and consider your position.  It can be quite an upset to be offered a settlement agreement, but in most cases you should consider what your options might be.  Do you want to see if there is any way of keeping your job, if the employer is proposing that you leave?  Do you want to try to negotiate a better settlement or terms?  Do you want to accept it and get it out the way? 

    2. Find a suitable solicitor or other legal advisor.  Settlement agreements are only valid if you obtain advice on its terms and effect advice from an independent legal advisor.  That will usually be a solicitor, but could be a barrister, a CILEX registered legal executive authorised to carry out litigation and advocacy (or one without that authorisation, but supervised by a solicitor), or a trade union official certified by the union to be competent to provide the advice.  It could also be a suitably certified voluntary worker.  Remember that you need time to find the appropriate advisor, to instruct them, receive advice, and potentially to negotiate on the terms or sums offered.   

    3. Think about the cost of the advice you are getting.  All settlement agreements should have a clause in them where a contribution towards your legal costs will be paid by the employer if you enter into the agreement.  If you are happy with the situation and the agreement generally, then the amount offered on legal costs is likely to cover those costs.  If, however, the amount offered for legal costs is at the lower end of what is normally offered, and the draft agreement is longer or more complex than usual, or you want help in negotiating terms, then you will probably have to pay some of your legal costs yourself.  You will also have to pay your legal costs if you obtain that advice and then decide not to enter into the settlement agreement.   

    4. What claims might you have that the employer is trying to settle?  If you think that you have a claim against the employer, you may be able to negotiate a better deal under the agreement.  The claim may be to do with the criteria on which you have been selected for redundancy, or it could be discrimination, or that your employment contract was terminated without a legal reason.   

    5. What are the terms that the employer is trying to impose?  Many employers will try to ensure that you agree not to get a new job or start a business in competition with them for a period of time after your employment has ended.  Or they will make it a condition of the payment of the compensation that you do not say anything bad about them (which is normally fairly reasonable, unless you are going to continue working for the same employer, as it could prevent you from raising grievances).   

    6. What terms do you want in the agreement?  There is often scope for negotiating the terms of the agreement to include terms that you want.  You may want to ensure that the employer is obliged to provide a reference when asked by prospective employers.  Or you may want to see if you can extend the termination date to allow you to become entitled to a bonus that you would not otherwise become entitled to.  Some things, like a reference, are more likely to be agreed than others, such as an additional bonus payment to you.  Consider what would help you to move on, and what overall goals you have.  Remember that anything that you might have agreed with the employer that does not appear in the agreement will probably be unenforceable, so check to make sure that those things are in there. 

    John Cameron at Rudlings Solicitors LLP is able to advise and represent you in relation to your claims against you.  

    This article is not intended to constitute legal advice. If you are unsure as to your legal position you should seek independent legal advice as soon as possible.