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We haven’t done anything wrong – why would we want to offer an employee a settlement agreement?!

In this blog we explore the commercial reasons for using settlement agreements, whilst settlement agreements shouldn’t be used on a regular basis, when used correctly and for the right reasons they can be mutually beneficial to both you as the employer and the employee.

What is a settlement agreement

A settlement agreement is a legally binding written agreement that is formed between an employer and an employee.  They are used for multiple reasons including to avoid or resolve a workplace dispute and to end the employment relationship (or after the employment relationship has already ended), where enhanced redundancy is paid, employees leaving a business on a sale.

Typically, they are used to resolve matters and to mitigate against any other potential claims or disputes.

The purpose of a settlement agreement is that the employee waivers their right to pursue a claim in exchange for a financial sum offered by the employer.

Why should I use a settlement agreement if I haven’t done anything wrong?

There is no obligation to enter into a settlement agreement with an employee, it is an option that can be considered as part of managing an HR matter.

A settlement agreement is not an admission of wrongdoing, it is a commercial and pragmatic way of resolving a matter, compared to the cost that can be incurred of being taken to an employment tribunal or undertaking arduous HR processes.

It is often in the best interest of both parties to try and resolve the matter quickly rather than going through an employment tribunal process, which on average can be more than a year depending on your location.  Sometimes the employee will propose the settlement agreement, and sometimes this will be initiated by the employer.

Settlement agreements are a commercial way of resolving a dispute within the workplace.

When should I not use a settlement agreement?

It is not always appropriate or lawful to use a settlement agreement, and we suggest that you seek support from ViewHR on when is best to use them and in what ways.

It is important to remember that employees cannot contract out of the right to receive statutory entitlements and payments including:

  • Statutory sick pay
  • Statutory maternity pay
  • Statutory paternity pay
  • Statutory adoption pay
  • Statutory shared parental pay
  • Statutory parental bereavement pay

Therefore, the circumstances and the reasons for a settlement agreement need to always be properly considered. Likewise, special consideration should be given when the following claims are in issue:

  • Claims under TUPE, including failure to inform and consult
  • Claims under the Agency Workers regulations 2010, including those breaching rights to basic working and employment conditions
What are the benefits of using settlement agreements?

As previously stated, using settlement agreements can be a commercial and pragmatic way to resolve a matter within the workplace, they can be useful in controlling costs and can provide assurances that an employment tribunal cannot be bought against you.

Matters dealt with under settlement agreements are often resolved quickly for both parties and can generally lead to less stress in the long run as they avoid lengthy tribunal proceedings. The employee will leave the business in a dignified manner with an agreed reference and you as the employer will gain security in knowing you won’t be dealing with a lengthy and costly employment tribunal, and preserve your reputation.

Please see our previous blog on settlement agreements and how they are reached as it is vital that conversations initiating them are handled very carefully and within the appropriate legal frameworks.

If you are considering using a settlement agreement to resolve an issue with an employee, there are different options, and sometimes the situation can be prevented if addressed early enough.  As such, please contact a member of the ViewHR team today to discuss the situation and identify a plan for resolution.