Settlement Agreements in Hampshire

Once a legally binding settlement agreement has been entered into by both parties, the employee is prohibited from pursuing a claim against their employer.

Employment tribunal claims that can be settled include a range of potential claims an employee may have, including unfair dismissal claims, discrimination, whistleblowing, unlawful deductions from wages, and failures by the employer to allow the employee to assert statutory rights, such as statutory family leave and related pay entitlements.

It is important for both parties that legal assistance is obtained to identify any potential claims and to understand the merits of any claim.

It is important that both parties have a realistic valuation of any compensation a judge may apply, as this supports and underpins the discussion and is a key component to reaching eventual acceptance of the agreement.

Again, legal assistance is essential in attributing realistic values to any claim or potential claim.

Once the terms of negotiation are agreed, these are incorporated into the settlement agreement.

For swift, fair and stress-free dispute resolution, choose HR First. Our settlement agreement expertise protects your business and your people, delivering clear guidance and mutually beneficial outcomes—fast. 

When an employment dispute arises, which is settled by a settlement agreement, it does not necessarily mean that employment will terminate.

The negotiated preferred, better outcome for both the employer and employee could include employment continuing.

While negotiations are taking place to resolve the dispute, the employment may be continuing, with the employee perhaps suspended with pay or working under protest.

Where employment has been terminated, perhaps unfairly, the negotiated settlement might include reinstatement or re-engagement of the employee.

Reinstatement means that the employee returns to the same job.

Re-engagement means that the employee returns to a different job, with perhaps amended terms of employment in accordance with the new role.

The advantages of this option include the continuous service being preserved so the employee does not lose the statutory rights that have been accrued, the employee not having to find alternative work, and the employer not needing to recruit.

Further, the agreement sets out the terms to which both parties must adhere so both parties feel confident that the cause of the dispute has been addressed and mutual respect is restored so relations may be more harmonious in the future.

If either party fails to adhere to the settlement terms, then the injured party is able to seek redress, including compensation such as a lump sum payment, to enforce the terms of the agreement.

In most cases, settlement agreements are used to clarify what is agreed to ‘settle’ the dispute and to set out the terms by which the employment relationship will be brought to an end by mutual agreement of both parties.

Where employment terminates, the employee may receive a tax-free lump sum and an agreed reference in compensation, subject to statutory limits.

Employee national insurance contributions are not payable on a tax-free lump sum, subject to statutory limits.

This gives a financial cushion which supports the employee during a period of time while seeking alternative employment in the period following the termination of employment.

Under the legal mechanism, which governs how settlement agreements operate, the employee must be legally advised prior to signing the agreement. As part of the process, the legal advisor is also required to confirm that advice has been provided. Normally, the employer covers the legal fee for such advice.

The settlement agreement is drafted initially by the employer, and the legal costs of drafting the settlement agreement are normally paid by the employer.

Settlement agreements operate in a similar manner to compromise agreements.

The proposal to enter negotiations to settle a dispute can be initiated by either party.

Where a settlement agreement is used, the employee effectively agrees to ‘forsake’ the right to progress a claim to an employment tribunal. In return the employee receives what was agreed in the settlement agreement.

Consequently, it is of paramount importance to both parties that the settlement agreement is carefully drafted to incorporate what is intended by both parties.

The claims which are ‘forsaken’ are limited to those incorporated in the settlement agreement.

If a settlement agreement is drafted well, then once the legally binding document is signed, both parties must comply with the obligations detailed in it or face legal consequences.

Once agreed and signed, there are only very limited avenues for one party to challenge and reopen the dispute.

The risk for the employer is that a relevant claim is not included in the agreement, which means an employment tribunal claim could be progressed for claims not covered in the agreement.

This is one of the reasons employers should seek guidance before signing a settlement agreement and making any payment.

Settlement agreements are a means of settling a dispute as an alternative to pursuing the matter via an employment tribunal or county court.

Once a legally binding agreement is reached, both parties are bound by the terms of the settlement agreement.

A settlement agreement therefore gives certainty to both parties as to the outcome.

Settling a dispute via a settlement agreement can be cost-effective for both parties.

Particularly if the costs are compared to progressing the matter via an employment tribunal or county court.

Further, reaching a legally binding agreement via a settlement agreement can be comparatively swiftly executed.

Where a matter does progress via litigation, the proceedings and final judgement are placed in the public domain.

Employment Tribunal decisions are, for example, available via a search of the internet.

Both parties may wish to avoid the dispute getting into the public domain and the reputational damage that may entail.

Business owners in some sectors may have a further consideration.

Some competitive tender bids preclude firms from the tender process if an award is made against the employer at an employment tribunal.

For this reason some employers may wish to minimise the risks of an unfavourable outcome by avoiding a dispute progressing to an employment tribunal.

With a settlement agreement, both parties have the option of obtaining additional rights which are not within the jurisdiction of the judge to award.

For employees this may include a reference. For the employer, it may include certain protections, for example, in regard to confidentiality.

Settlement agreements enable the employer to negotiate such additional rights and restrictions to protect the business and for these to be incorporated into the settlement agreement.

There is no option to incorporate additional terms or protections if the dispute is settled via an employment tribunal hearing.

If a dispute is settled via an agreement, both parties can agree to incorporate ‘non-disclosure’ clauses into the agreement. Note there are limits on the enforceability of non-disclosure agreements.

This particularly applies in the circumstances where the agreement is being used to ‘silence’ acts of wrongdoing or whistleblowing allegations.

A judge in law may have limited jurisdiction to make some awards or findings.

If a settlement agreement is used, no such limits apply.

Therefore, settling a dispute via a settlement agreement offers both parties greater flexibility to agree on the terms of the agreement.

For a settlement agreement, the employee must receive independent legal advice on the terms.

The cost of such advice is normally funded by the employer.

The settlement agreement will also need to be negotiated, and the terms of the settlement agreement drafted and the final terms agreed.

HR First provides help to employees and employers with negotiating and drafting settlement agreements.

On occasions it is not possible for an employer and employee to reach an agreement.

In this case HR First provides support via our employment tribunal representation service.