Settlement Agreements: a useful tool to help you resolve work place disputes
DENTAL BULLETIN, ISSUE 29
A large percentage of your time is spent at work and you naturally build up relationships with those around you. However, as with any relationship, there are ups and downs and sometimes breakdowns can become irreconcilable.
With the cost of Tribunal litigation being high and very little chance of recovering such costs against a losing party, what are the alternatives?
A settlement agreement (formerly a compromise agreement), is one such option. It is a legally binding contract between an employer and employee which settles a current claim or prevents an employee from pursing future claims. It normally involves financial compensation being paid to the employee in consideration for the employee compromising those claims.
When to broach the issue
Depending on where you are with the dispute will depend on how you can approach the subject. If the legal dispute has already arisen, the dismissal has taken place or a claim has been issued, then the best way to start talks is via ‘without prejudice discussions’.
Alternatively, if the dispute has not yet arisen, you can now undertake ‘pre-termination negotiations’, which we discussed in more detail in issue 21 of our dental bulletin.
In our opinion, the sooner you decide to broach the subject the better, as it can save you time and money; it can also prevent those difficult conversations about working relationships or attitudes that no one likes to have.
In most cases it will be the employer who puts forward the idea of a settlement agreement to resolve a dispute, but that does not always have to be the case. Any party can suggest compromising claims via a settlement agreement to avoid the time and money of going to a Tribunal.
If an employee approaches you about such an option, don’t brush it off without consideration. If the employee is suggesting this you need to consider; are they happy at work? Are they performing well? Could you use the opportunity to re-evaluate roles and responsibilities and reward those who are loyal?
Settlement Agreement Legal Requirements
6 considerations for a settlement agreement to be legally binding:
1. It must be in writing;
2. It must relate to a particular ‘complaint’ or ‘proceedings’;
3. The employee has to receive independent legal advice on the terms and effect of the agreement;
4. The legal adviser must have insurance in place to cover the advice given;
5. The adviser must be identified in the agreement;
6. The agreement must state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied.
Consequences of getting it wrong
One of the more costly mistakes is not getting a solicitor to sign the agreement to confirm they have provided the necessary advice to the employee. Employers often think that as long as the employee signs any agreement and the money is paid, that is the end of the matter. Unfortunately, this is not the case. In this scenario an employee could still pursue a claim in the Employment Tribunal. Whilst there are ways to try to stop the claim proceeding they may not always be successful, meaning the employer has to fork out for the legal costs and then ask the Tribunal to deduct any settlement monies from the damages awarded.
Ensuring that the right claims are settled is also extremely important. Not all claims can be resolved in a settlement agreement; an employee will have advice on this from their legal adviser. As an employer it is therefore important not to use draft agreements from previous settlements. A one size fits all approach is not always appropriate.
If you would like to discuss any part of this article or need any assistance with drafting or executing a settlement agreement, please contact Laura Pearce on 0207 388 1658 or at firstname.lastname@example.org.
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Laura Pearce, Senior Solicitor
Please note that the information contained in this article was correct at the time of writing. There may have been updates to the law since the article was written, which may affect the information and advice given therein.