Settlement agreements are a useful option for employers when trying to resolve a dispute quickly and amicably. The option of settling an employee dispute can arise in a number of circumstances, for instance, during a redundancy process or during a performance management review.
There are numerous reasons an employer may choose to enter into a settlement, for instance, a settlement offer could be made in circumstances where there is a personality clash between the employee and the employer’s line manager.
The guidance note sets out what steps the employer should take when making a settlement offer to an employee.
What Is A Settlement Agreement?
In its simplest form, a settlement agreement is when an employee is given a sum of money through a termination payment. In exchange for this, the settlement agreement will prevent the employee from bringing any claims against the employer or former employer.
This gives the employer some peace of mind as it ensures the employee cannot issue a tribunal claim once the employee’s contract of employment has terminated. It is also standard for settlement agreements to come with a confidentiality clause, which ensures that an employee termination does not attract unwanted or adverse publicity.
When Does An Employee Settlement Offer Need To Be Made?
Settlement offers can be put to an employee at any stage, though it is most common for offers to be put forward against the backdrop of an existing employee dispute, for instance where an employee is going through a disciplinary process which could result in their dismissal.
In most cases a settlement agreement will be entered into as part of a termination arrangement, however in some rare cases, a settlement agreement may be offered whilst the employment relationship is still on-going.
Are There Disadvantages To Offering Settlement Agreements?
Employers should be aware that offering a settlement agreement could result in an additional cost. It is standard practice for the employer to offer a contribution in relation to the employee’s legal costs. This usually ranges between £250.00 / £500.00 plus VAT. It is a legal requirement for an employee to seek advice from an employment solicitor or certified trade union official before entering into a settlement agreement.
Employers are advised to offer the employee something above their basic contractual or statutory entitlement as an incentive to agree to the settlement terms. This can result in the employer incurring additional costs.
Employers should be open to the possibility that an employee could reject the settlement offer. When this happens an employer should consider whether it would be practicable for the employee to return to the workplace. Both the employer and employee may find this slightly difficult, and so to avoid this scenario settlement offers should generally be made where employers are confident that the employee will accept the settlement terms.
Employers may also want to ensure that they have solid grounds for dismissing the employee in circumstances where the employee rejects the settlement offer.
What Is A Protected Conversation?
When putting a settlement offer to an employee, the employer may engage in what is referred to as a protected conversation. This is an off the record conversation and means that any discussions that do take place cannot be brought up in court by the employee. This could involve an employer expressing to an employee that serious performance issues exist which could potentially result in their dismissal.
Employers should be aware that the principle of a protected conversation will not apply in cases involving whistleblowing or discrimination. Employers may wish to consider seeking advice from an employment lawyer before having a settlement discussion with an employee.
The ACAS Code of Practice on Settlement Agreements states that employers should not behave improperly when communicating a settlement offer to an employee. Examples would include if an employer made threats of violence against employees or trying to exert undue pressure on an employee to accept the terms. Typically, this may involve telling an employee that they may be dismissed if they do not agree to the proposed terms.
Should the employer fail to comply with these guidelines then any conversations that are had with the employee could lose their privileged status. This means that the employee will be able to use these conversations in court. This could reflect badly on the employer by supporting the employee’s case.
What Are The Time Scales?
The ACAS Code of Practice sets out a period of 10 days for employees to accept the offer, unless the parties agree otherwise. The Code acknowledges that each case is different so this timeframe is not legally binding.
Employers will generally want to give the employee enough time to consider the offer and to obtain independent legal advice. At the same time, if the employee delays unreasonably in signing the agreement then the employer may wish to consider withdrawing the settlement offer.
How Can Simpson Millar Assist With My Settlement Agreement?
Our employment law specialists at Simpson Millar have considerable experience in advising employers on difficult employee situations. We will be able to talk you through each step of the process and provide you with commercial, practical advice when it comes to managing employee terminations.
Call one of our employment solicitors today on our freephone number, or message us using out online digital enquiry form.