Let’s Settle This (Part 2)

In my last post, I looked at when a small business might want to consider a Settlement Agreement. This follow up post looks at some of the practical issues when discussing an agreement.

The first thing is making the initial approach to the employee. Some people find this quite difficult to do but often – especially where there is a clear dispute – the employee may well be expecting you to say something. It’s important that at this early stage you simply talk about the principle of coming to an agreement, rather than jumping in with an immediate offer.

Follow this up in writing – confirming that you consider your discussion a protected conversation under the Employment Rights Act. This means that any discussions will not be admissible* if things break down and you do end up with a Tribunal Claim. (*Unless in the course of the discussions you say something as stupid as “I’m only getting rid of you because you’re pregnant/gay/Muslim” etc, or try to bully or harass the individual, in which case they can be used in support of a claim). You may also want to add the words “Without Prejudice” to any letter/email although strictly speaking these words only protect lawyers.

Think about the offer you are going to make. The individual is signing away legal rights so will expect something more than their basic contractual payments. Like any negotiation, consider your opening offer and what you are prepared to go up to. Remember also that negotiations break down it may be 6-8 weeks before you can justify dismissal so you’ll be paying the person for this long anyway – so an additional cash amount might be cost-neutral. You can also think about whether there are any non-financial benefits you can offer – a good reference for example. Try to avoid thinking in emotional terms “I don’t want to give this person £££” and look at it commercially

It’s also now “expected” – though you don’t legally have to do it – that the employer will make a contribution towards the employee’s legal fees. The amount is usually fixed, but in my experience will depend on the particular solicitor – one of the advantages of the north of England is that they are often cheaper!

Finally, remember that the agreement is voluntary – you or the employee can walk away at any point and if this happens then you continue as if the discussions had never taken place. This might mean restarting a performance or disciplinary process.

Let’s Settle This!

As with much of employment law, many of the small businesses I work with have heard of Settlement Agreements but aren’t quite sure exactly what they are. Recently I’ve had a couple of cases where clients have had concerns that discussing a settlement with an employee will be interpreted as a sign of “weakness”. This is the first part of a two part post (second part later this week), which looks at what they are and when and how they can be useful.

Firstly, you may be more familiar with their old name – Compromise Agreements – which was changed a couple of years ago as many people felt that “compromise” suggested that they had somehow “given in”. They are a legally binding agreement between an employer and an employee to end an employment contract, usually in a situation where there is some dispute between them.

The advantages for employers in this situation are:

  • No risk of a subsequent employment tribunal
  • Ends the relationship swiftly, allowing you to concentrate on running the business not dealing with an employee problem
  • Avoids any potential issues of bad publicity or reputation damage

There are disadvantages however

  • You may have to pay out more to the employee than you would contractually be obliged to
  • You may be expected to contribute to the employee’s legal fees
  • You may have to make certain commitments (e.g. provide a reference) that you might not otherwise want to
  • It is voluntary – you cannot force an employee to agree to one

To be legally binding, a Settlement Agreement must be in writing, contain certain clauses and most importantly the employee must have received independent advice from a qualified solicitor*, who must also countersign the agreement. Employers do not have to have employment law advice on the agreement (though many do) and there’s no requirement for their adviser to sign. A settlement agreement does not have to be a long winded legal document however – it’s perfectly possible to create a valid one on a side of A4.

But hang on, you may be thinking – “why don’t I just dismiss the individual? After all, didn’t you say in this post that it wasn’t as complicated and scary as many employers think?”

Clearly, you can just do this – but in many situations Settlement Agreements can be the better solution for both parties. And in part 2 of this blog post we’ll show you how to negotiate one.

*A qualified solicitor is one who has specific insurance which allows them to advise on employment matters. It is designed to protect the employee in the event of negligent legal advice. There are also certain others who are allowed to countersign settlement agreements such as CAB legal advisers, or some Trade Union officials