SETTLEMENT AGREEMENTSThe Three Things You Need To Know As An Employer

DISCLAIMERThe information is correct at the date published.

The information is not intended to be and should not be construed as legal advice.

CONTENTS PAGE

4WHO IS THIS GUIDE FOR?

5HOW CARTER BOND CAN HELP

6WHAT IS A SETTLEMENT AGREEMENT?

71 - THE BENEFITS OF USING A SETTLEMENT AGREEMENT

82 - THE CIRCUMSTANCES WHEN A SETTLEMENT AGREEMENT IS APPROPRIATE

9 3 - THE RISKS INVOLVED AND WHEN NOT TO USE A SETTLEMENT AGREEMENT

10 EMPLOYMENT LAW

WHO IS THIS GUIDE FOR?

There are many tough situations you will inevitably have to come up against at some point during your time as an entrepreneur.

One of these being the task of letting people go. Whether it comes down to job performance or tough economic conditions, it is a decision feared by all business owners.

There is no easy way through this process. However, if you prepare and know the correct procedure to follow with a settlement agreement, you avoid unwanted claims in the Employment Tribunal and the legal costs involved in these proceedings.

WHY DID WE WRITE THIS GUIDE?

The statutory framework of employment law gives employees a substantial amount of legal protection. As a result, the employer has to go through a rigorous redundancy process to avoid any pitfalls that could lead to dealing with a costly tribunal claim.

IN THIS GUIDE, YOU WILL DISCOVER WHAT YOU NEED TO KNOW AS AN EMPLOYER, INCLUDING:

• The advantages of using a settlement agreement • The circumstances when you should use a settlement agreement• How to effectively manage the termination of an employment contract with a settlement agreement• The correct way to use a settlement agreement so your business is legally protected• The risks involved when offering a settlement agreement

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HOW WE CAN HELP

For entrepreneurs and businesses looking for practical, commercial advice and expertise, Carter Bond is a forward-thinking boutique law firm providing you with everything you need through the cycle of your business. From start-up to exit and everything in-between – disputes, trademarks, merging issues, shareholder agreements, franchising – we deal with it all.

Carter Bond is a City-level firm located outside of The City. We’re not your everyday, traditional law firm. Our team has done their time in The City. We know how it works, and we thought it was about time things were done differently.

We’re professional and confident in our ability to deliver nothing less than the highest service. Not in an intimidating, know-it-all kind of way but within a friendly environment where you can ask any question you have, at any time and without judgement.

The truth is, what makes us different isn’t entirely different at all. It’s the small things we find the most satisfying.

We do what we say we will. We’re responsive and we’re there for you when you need us. We return your calls. We don’t take days and weeks to respond to your emails. And we don’t expect you to “clock watch” every time you need to speak with us about your business.

Being small is an advantage. Unlike larger firms, you’re not just a number. You won’t get lost and, at every level, you’ll know exactly who is working on your business. Our entire team is equipped with the experience and knowledge to deliver solutions to your business needs.

For us, this isn’t short-term. We’re here for as long as you need us to be. So, whether you’re looking to move from your current solicitor or it’s your first time engaging with a firm, please contact us on 0203 475 6751 to discuss how we can help/assist.

WHAT IS A SETTLEMENT AGREEMENT?

A settlement agreement is a legally binding and confidential agreement between you and your employee. Effectively, you, the employer, offers an employee a sum of money to compensate terminating their employment and in return, they agree to not to bring any employment claims.

PRE-TERMINATION NEGOTIATIONS

Once you give an employee a settlement agreement, you are encouraged to sit down and have a pre-termination conversation with them. This is a protected discussion where employers have to be honest about the reasons for terminating an employee’s contract. It is important to note that anything discussed cannot be used in an unfair dismissal claim.

However, there are exceptions, which is why it is highly advisable to seek advice from your lawyer before any conversation takes place.

AN EFFECTIVE WAY TO HANDLE TERMINATION

When used correctly, settlement agreements are an effective way to handle terminating an employee contract. However, with any business decision, they need to be handled with careful consideration.

UNFAIR DISMISSAL

Set against the current landscape of employment law, dismissal of employees is a situation that can turn ugly quickly if the wrong approach is taken. Just a single case of unfair dismissal could cost your business up to £100,000.

The way you deal with this sensitive matter is the difference between an employee accepting a settlement agreement or claiming unfair dismissal. Are you comfortable with knowing you may be the subject to a drawn-out tribunal claim? Probably not.

Employers should think carefully before initiating a “protected conversation”, especially in a circumstance which could result in a discrimination or victimisation claim. There are a number of legal requirements to be met for a settlement agreement to be valid. Ask your lawyer to assist you in the process.

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1 - THE BENEFITS OF USING A SETTLEMENT AGREEMENT

While it allows an employee to waive most legal claims they have against the employer, a settlement agreement also provides an employer with additional protection including:

Duties of confidentiality

Non bad-mouthing provisions

Post-termination restrictions

The main benefit of wanting to enter into a settlement agreement is to outline exactly what is expected to happen between the parties while offering you a clean break with the employee in question.

PEACE OF MIND

Settlement agreements give you peace of mind knowing the terms offered and the value of the financial settlement will remain private. This means if you have any other employees with grievances, you can be certain the information shared is kept confidential.

It gives you, as the employer, the security to know the employee cannot bad mouth you or take any future legal claim against you.

HOW TO REACH A DEAL

When an employee signs a settlement agreement they agree to relinquish their rights to make any future claims against you.

This means the deal offered to the employee should reflect a reasonable amount in exchange for them giving up their right to claim.

It varies considerably depending on the position of the employee and the strength of the case. If the employee feels like they are not being reasonably compensated, it is likely they won’t sign.

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2 - THE CIRCUMSTANCES WHEN A SETTLEMENT AGREEMENT IS APPROPRIATE

The most common situation to use a settlement agreement is when an employer is dealing with an employee with work performance or misconduct issues. The employer may feel instigating formal performance or disciplinary procedures won’t improve the situation within a reasonable amount of time.

For time management concerns, settlement agreements are useful for employers who need a quick yet effective way of ending an employment contract without undertaking drawn-out redundancy or capability processes.

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WHAT LEGAL CLAIMS CAN BE WAIVED?

If the legal claim relates to statutory and contractual rights, it is possible for a settlement agreement to waive the claim being made, including:

• Unfair dismissal• Unlawful deduction of payments• Discrimination• Statutory redundancy pay

HOWEVER, NOT ALL CLAIMS WORK THIS WAY, INCLUDING:

• Accrued pension entitlement• Personal injury• Breach of the settlement agreement itself

IN SHORT, SETTLEMENT AGREEMENTS ARE USED BY EMPLOYERS FOR THESE REASONS:

1. Concerns about the reasons upon which the employee was made redundant2. The amount of time it takes for an underperforming employee to complete a performance management programme (up to six months) before you can give notice of termination3. Cases relating to long-term sickness and circumstances where a grievance needs to be settled

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3 - THE RISKS INVOLVED AND WHEN NOT TO USE A SETTLEMENT AGREEMENT

Like most decisions relating to business, there is always a certain amount of risk involved.

A settlement agreement cannot make all your problems disappear. There are certain situations where you may expose yourself to liability if you offer a settlement agreement.

DO NOT OFFER A SETTLEMENT AGREEMENT OUT OF NOWHERE

You need to raise concerns about the employee’s misconduct or underperformance prior to a settlement agreement. If you don’t, they may claim any supporting documents are “off the record” or “without prejudice”.

If the employee refuses the settlement agreement, they are in a position to argue that the mutual trust between employer and employee has broken down.

As a result, the employee can, therefore, use the settlement agreement as part of a formal dispute against you. If this is not resolved moving forward, they can then use this as part of a claim for discrimination in the tribunal claim.

ONLY CERTAIN CONVERSATIONS ARE LEGALLY “PROTECTED”

This is a major grey area. Having a settlement agreement in place does not automatically legally protect every discussion between the parties. Conversations during this process could be used out of context to file a claim of unfair dismissal.

HERE ARE A FEW OF THE SCENARIOS WHERE A SETTLEMENT AGREEMENT IS NOT LEGALLY PROTECTED:

Victimisation

Not giving an employee reasonable time to consider the offer

Pressurising an employee to sign or they risk dismissal

As you may be aware of by now, there are many pitfalls involved in a settlement agreement. Legal advice is recommended before going through with the process.

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EMPLOYMENT LAW

Who you employ and how you employ people can be the deciding factor in the success of your business. Managing people is never easy. The ever-changing environment of employment law means it is vitally important for employers to stay abreast of changes and understand their full impact.

We will work closely with you to help you manage the risks and minimise potential liabilities as well as making sure all of your contracts and policies are up to date. Our experienced lawyers can also advise on post-termination disputes and represent your business at mediations, tribunal hearings, and appeals.

HOW WE CAN HELP YOU:

• Advise on recruitment techniques, policies, and law

• Prepare contracts of employment for senior and junior employees, contractors and workers

• Prepare bespoke consultant agreements

• Assist in providing employee handbooks, policies and procedures to ensure it suits your business

• Provide advice on employee rights

• Advise on all matters regarding dismissals, disciplinary, grievance and performance review

• Advice regarding redundancy

• Assistance in preventing and/or dealing with discrimination, harassment or bullying

• Defending Employment Tribunal claims

• Advise and assist on restrictive covenants and their enforceability

• Advice concerning TUPE

• Prepare and advise on Settlement Agreements

• Advise on pregnancy, maternity, paternity and adoption rights

• Advise on employee sickness absence

• Advise on working time regulations

If you would like to learn more about this guide and how we can help you protect your business, please get in contact with us to discuss how we can help you.

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If you are dealing with these issues in your business or need help with employment law matter, including settlement agreements, we can help.

Our team has extensive experience of advising clients just like you. The first step is to call and speak to one of our lawyers who will provide you with solutions tailored to your business needs.

Email us at info@carterbond.co.uk or call us on +44 (0)20 3475 6751 and let’s talk.

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