Reasons to choose Wilson Browne
Settlement agreements are legally binding contracts that employers can use as a method for settling employment claims any employee might have.
The agreement itself is between employer and employee, but this contract can also apply in collective situations in the workplace.
Why Use Multiple Settlement Agreements?
Sometimes, employers face tough choices, and the only cost savings option open to them is to lose employees.
The redundancy process can be complex and time-consuming, especially if there are considerable numbers of employees involved. It can also have a detrimental impact on the broader workplace culture if the employer does not handle it carefully.
It is important that an employer can reach a settlement agreement with the employees who are losing their jobs for several reasons:
- If 20 or more employees may be made redundant in a period of 90 days or less, the employer will need to collectively consult even if their employment is terminated via a settlement agreement
- minimises the risk of future claims through employment tribunals
- It draws a line and allows all parties to move on.
A settlement agreement may be preferable for employees too, since it can remove much of the stress and uncertainty that comes with this process.
How Do Settlement Agreements Work?
Settlement agreements are legally binding agreements; normally, an employer and employee would enter into one before terminating the employee’s contract.
Where the employer wants to offer enhanced termination payments to a group of employees.
A settlement agreement can be offered even if there is a genuine redundancy situation.
An employee can request a settlement agreement, but it is more usual for an employer to initiate the process to agree to severance terms.
Settlement agreements are also known as compromise agreements. The employee agrees to waive most of their legal claims in such agreements, and the employer usually offers a termination payment.
This termination payment can be tax-free, up to £30,000.
The employer can include terms in the agreement to protect the reputation of their business. These include confidentiality and non-derogatory comments clauses.
The settlement agreement may also have post-termination restrictions, to protect the business’s interests by restricting the employee’s activities for a set period after employment has ended.
What Should the Settlement Agreement Include?
Settlement agreements differ, according to circumstances, but typically, their main features are:
- The value of any termination payment
- Notice pay and any holiday pay due
- Any contractual bonuses, benefits, or shares
- Confidentiality clauses, also known as non-disclosure agreements
- Waiver and settlement of employee claims
The agreement should also be clear about which payments are tax-free, and which may be subject to income tax and national insurance deductions.
It should also address practical issues for the termination of employment, such as handovers or return of company property.
It should also give details of any legal costs involved.
What Should Happen First?
The settlement agreement process can become more complex if involving a group of employees.
For employers, streamlining this process means taking the right steps early on during it.
They should review the draft settlement carefully before distributing it to each employee. This may save time later.
Group meetings with those employees affected are essential to explain the process and what is in the agreement. It is also useful to provide written FAQs to go with the agreement.
Even though this is a multiple settlement, each employee will have their own individual terms, therefore there should be individual meetings with each employee to advise them.
All discussions need to be clear, and while an employer might want to be as efficient as possible, they should always allow enough reasonable time for all employees to consider their offers.
If they do not allow this reasonable period, this could become evidence in an unfair dismissal claim.
At the same time, the discussion process must also be voluntary for employees. The employer cannot force them to take part in settlement agreement negotiations, and the employee can always turn down the employer’s offer.
Why is Legal Advice Essential?
An employee must receive independent legal advice before entering into a settlement agreement. Without this legal advice, the settlement agreement will not be a legally binding or valid contract.
It is usual for the employer to pay the employee’s legal costs for advice about a settlement agreement.
Where there is a multiple agreement settlement, the employer must still ensure that all the staff involved get this independent legal advice.
If they need to streamline this process, it is acceptable for them to direct their employees to a single firm of solicitors or legal adviser for this purpose.
In this situation, the legal adviser involved must not be in any way acting for the employer or be employed by them.
Using the same adviser can help with both consistency and efficiency in the process. But the employer cannot insist that the employee uses a specific legal adviser. The choice of a legal adviser must still rest with the employee.
To be legally binding, the agreement itself must name the legal adviser and confirm that the employee has received their advice.
The employee can still bring a claim against the employer if the agreement does not meet certain statutory requirements:
- The settlement agreement must be in writing
- It must relate to specific proceedings
- It must set out what it intends to do
- It must Identify the adviser who has given the employee legal advice on the terms and effect of the agreement
- The agreement must state that it meets the statutory regulations covering settlement agreements.
Can a Settlement Agreement Go to Court?
The settlement agreement itself will not go to court unless there are breaches to the agreement itself, by either the employee or the employer.
For example, if an employee breaches the confidentiality part of the agreement, then the employer could sue them or they could also apply for an injunction
Assessing this type of loss can be difficult, but the employee could also be at risk of the employer then refusing to provide a reference, or even paying all the settlement money.
On the other hand, if an employer fails to pay an employee the agreed payments, then then the employee could make a breach of contract claim.
However, the employee would still not be able to bring any of the claims listed in the original settlement agreement, as the legally binding settlement prevents them from doing this.
Generally, a settlement agreement should work to keep parties from feeling they have to go to court to settle claims or disputes.
Settlement Agreement vs Employment Tribunal
Employees facing termination of their contract should consider whether they would benefit more from a settlement agreement or taking their employer to an employment tribunal.
With an employment tribunal, they can face a degree of uncertainty, possible long delays, and the risk of losing.
With this risk comes the potential of the employee facing significant costs.
They will, however, get their day in court.
Alternatively, a settlement agreement offers certainty with an outcome that is relatively quick.
Also, the employee knows in advance the value of the settlement and is likely to incur little or no legal costs.
The whole process is likely to be much less stressful, but they will have no opportunity to go to court.
Wilson Browne specialises in settlement agreements and providing essential advice about employment.