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Settlement Agreements in the Employment Field



There are times when relations between employer and employee become strained and fraught. There are instances where employers follow no process, whether or not they have a staff handbook with stated policies. In such circumstances, the employer risks an employment tribunal claim. Others may follow lengthy procedures to achieve a fair dismissal. There is a way however to resolve claims efficiently, effectively and speedily by way of Settlement Agreements. These settle claims that an employee has or may have against their employer. Ideally, they can terminate employment on terms which both parties can accept.


From the employer’s perspective, the payment of an acceptable sum is the price worth paying to gain the certainty that there will be no adverse legal repercussions from the dismissal. Such a route is more efficient than a time consuming performance management or disciplinary process. From the employee’s view, they will receive a reasonable pay off invariably above any minimum statutory entitlement and the incentive of the certainty of the deal and the attraction of not having to pursue matters through a process at the tribunal where the outcome is uncertain and costly, as well as risky, is a real attraction. As to the type of claims which can be settled, these include breach of contract and most statutory claims, including unfair dismissal and discrimination in all its forms.


It is essential that the Settlement Agreement follows a legally compliant formula. It must be in writing, refer to particular complaints or proceedings and be clear about the issues being settled. There is also the need for the employee to have received legal advice from a relevant independent adviser (properly defined in the agreement) on the terms and effects of the agreement and how it would affect their ability to pursue rights in an employment tribunal.


Invariably, Settlement Agreements cannot be entered into lightly. Both parties, that is, the employer and the employee, are waiving rights to pursue certain claims and there is a need to ascertain that the Settlement Agreement is the best way forward commercially and in the circumstances. Legal advice will be needed to consider if there are alternatives to resolving the dispute which has arisen. There may be issues of the employee’s capability, performance management, or a disciplinary process. The risks in any claims must be considered.


Often, timing is crucial in these instances. The employee may welcome an agreement that provides a clean break on mutually acceptable terms, so each will part on good terms and the employee will have a reference. Legal advice can be given on how to deal with settlement negotiations and legal expertise is essential in the preparation of the Settlement Agreement as to as to what will be included and what may be left out. Issues such as, whether some restrictive covenants or confidentiality clauses should be included, will need to be addressed. It may be prudent to consider whether some of the settlement money should be withheld from the termination payment until the time limit has passed for the employee to bring any of the potential claims. There will need to be confirmation that the employee will withdraw any tribunal proceedings which have been started. It may be necessary to consider how the employee’s shares and pension (if relevant) should be dealt with. Additionally, whether the compensation element will be affected, if the employee has obtained another job.


Finally, there may be instances where the Settlement Agreement is breached, in which case, further legal advice will be needed as to how to react and enforce agreement.


There are many aspects to employment law, whether involving recruitment and selection of appropriate employees, or indeed advising such prospective employees on whether or not the contract of employment presented to them is suitable for them to agree. Preparation of contracts of employment and handbooks for employers dealing with issues of performance management, training and the handling of disciplinary and grievance matters are all dealt with, within our brief. We can advise as well on hearings and appeals, and all internal processes, as well as the termination of the employment. 



For further information and advice on all employment matters, please contact JPC Law’s employment specialist Julie Edmonds


General Enquiries:


T: 020 7625 4424



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