Settlement agreements can be an efficient way to draw a line under an employee dispute or performance issue. DAVID WRIGHT explains when to use them

Staff Strategy

DAVID WRIGHT

LAST MONTH, I WROTE ABOUT CHANGES to employment a “compromise agreement”, usually involving a pay-out. These were replaced in 2013 by “settlement agreements”, which are potentially much more beneficial to employers.

Settlement agreements must be entered voluntarily by both parties. For example, you’d never suggest, “sign it or you’ll be dismissed”. The agreement can be with an existing or former employee. In theory, it could also be with an unsuccessful job applicant claiming discrimination in the selection process.

Once a settlement agreement is signed, the employee cannot take their claim to a tribunal. Even if you can’t reach an agreement, the employee can’t use the offer to support their case at a later date – for example, “Clearly they wanted to dismiss me earlier as they offered me £5,000 to leave”.

This is important for employers as it means settlement agreement discussions are confidential. In the past, if discussions failed, the employee could refer to the offers in their tribunal case, potentially implying bribery.

However, there are clear exceptions where a settlement agreement cannot be used. These include where the case relates to harassment, bullying, intimidation or victimisation; physical assault or threat; discrimination; or putting undue pressure on a party.

When to settle

Employers have turned to settlement agreements when, for example, they are facing a long and difficult process to manage a poorly performing or persistently difficult employee.

This is understandable – it might take six to nine months of time and pain to work through your usual disciplinary procedure and the problem employee might be causing you untold stress and damaging your business.

An employer may also consider a settlement agreement where there is an ongoing dispute with an employee. I dealt with a case recently where a salon owner was constantly arguing with a therapist who refused to work weekends. After months of discussions, the settlement provided a mutually agreeable way of parting company.

It can be difficult to raise the issue of a settlement. Often, neither party has a feel for what is an appropriate financial settlement and it may well take a series of meetings to agree the final package.

There isn’t any official guidance on how much you should offer but it’s wise to consider the severity of the issue and the potential costs of the case going to tribunal, as well as the employee’s status and length of service.

Settlement agreements are attractive as the employer is absolutely clear that there will be no subsequent claim from the employee. They also take away the stress, costs and risks of going to tribunal.

However, you should consider the potential problems of starting the process but being unable to reach an agreement. Settlement agreements are not a substitute for the employer using good practice to manage difficulties.

Finalising the agreement

Once you’ve confirmed terms, a written agreement is produced and given to the employee. They should be given a reasonable amount of time (usually around 10 days) to consider it.

The agreement will include a termination date, the agreed amount and date of the payment, details of any additional outstanding money such as holiday pay, and provision of a reference.

For the agreement to be valid, the employee must have received professional advice and the employer typically pays for this. There is a section for an independent advisor to sign to confirm they gave advice to the employee.

David Wright is a consultant in all aspects of employment practice and law. He is the main employment law consultant for Habia and provides a personalised support service for UK salons. Tel: 01302 563691 davidwrightpersonnel.co.uk