What is a settlement agreement?
Settlement agreements operate in a similar manner to compromise agreements. When an employment dispute arises, for both parties reaching a negotiated settlement may be more appealing than having a judge decide a matter and imposing a decision, which is a compromise too far for both parties but by that time nothing can be done about it.
In signing a settlement agreement both parties negotiate an amicable mutually agreeable solution, which results in both sides settling an employment dispute and bringing the employment relationship to an end.
A settlement agreement is a ‘divorce’ for an employment relationship.
What are the advantages of a settlement agreement?
Where either party feels the employment relationship has entirely broken down, and employment rights are involved, a settlement agreement might be a good option for resolving the issue. If the relationship has not entirely broken down, then there are alternatives for resolving employment disputes click here.
Depending on the terms of the agreement, once a legally binding settlement agreement is in place, the employee is restricted or not permitted from pursuing a claim in court. This gives assurance and certainty to an employer. The other assurance for an employer is that by using a settlement agreement, the employer has the option of inserting clauses into the agreement. Often an employee may have knowledge about the employer’s business, which the employer may wish to exert control over to protect the business. Often employers will want to insert clauses to ensure confidentiality for example to avoid the risk of bad publicity. If a case is decided at an employment tribunal, a judge in deciding a case will not have the jurisdiction to award such restrictions on the parties.
In order to protect employees, and in order for a settlement agreement to be legally binding, prior to signing a settlement agreement, the employee must receive advice on the terms of the agreement. Often such advice is from a solicitor with expertise in employment matters, and the advisor will have appropriate levels of indemnity insurance. This means that the employee would have redress from the adviser for any fault with the advice. For the employee who agrees to sign a settlement agreement the fees for the advice are normally paid by the employer as part of the settlement negotiation.
For both an employee and employer a settlement agreement provides greater certainty over the outcome than other means of redress. A settlement agreement can also be an expeditious means of resolving an employment dispute. In terms of cost, a settlement agreement can also be a cost effective means of settling a dispute, as the time taken is much less than preparing for and attending an employment tribunal.
For both parties, pursuing or defending a tribunal claim, it is a protracted process; often lasting 12-18 months depending on how quickly a hearing date is allocated by the court. Throughout this time both parties are restricted from ‘moving on’ and putting the matter ‘behind them’. While waiting for the case to be heard , it can be stressful and distracting and as well as restricting. Plans for both sides have to work around the court hearing date.
For an employee, even if an employee successfully wins a case at an employment tribunal, the judge does not have the power to compel the employer to provide a reference. Yet a reference could be important for the employee to find future comparable employment. If an employee settles an employment dispute via a settlement agreement, one of the terms the employee could demand as part of the negotiation is the provision of a reference. If a reference is agreed as part of the negotiated terms of the settlement agreement, the employee will normally be able to exert some influence over the wording of the reference. It can be reassuring to an employee that a reference provided to a future employer is going to be at least satisfactory, especially where the employment with this previous employer ending in disputed circumstances.
HR First provides help to employees and employers with settlement agreements.
On occasions it is not possible for an employer and employee to reach an agreement. In this case HR First provides an employment tribunal representation service.