"Managing People with Morecrofts"

Settlement Agreements

I’ve decided I want a staff member to leave. What next?

An employer can have an ‘off the record’ conversation with an employee with a view to offering the employee a sum of money to leave the business. A change to the law in recent years means the employer can be protected from unfair dismissal claims arising from an “off the record” conversation, so long as the employer follows the correct procedure..  

Accordingly, if an employer follows the Acas Code of Practice on settlement agreements, they are able to put a proposal across to an employee without running the risk of that proposal being used against them in a tribunal claim for constructive or unfair dismissal.

It is crucial that the Acas Code of Practice is followed, however, as failure to do so may remove this protection. If an employer is intending to make an offer to an employee, they should always seek employment law and HR advice at the outset.

What is a settlement agreement?

A settlement agreement is a legally binding contract that acts to waive an individual’s rights to bring any claim covered by the terms of the agreement to an employment tribunal or court. 

This agreement must be in writing and usually includes some form of payment as consideration to the employee. settlement agreements are voluntary and an employee cannot be forced to sign one if they do not wish to do so. 

How long is this likely to take?

The Acas Code of Practice recommends a minimum of 10 days is given to an employee to consider a settlement proposal. 

What costs will I incur?

Apart from the cost of drafting the settlement agreement and the actual sum offered to the employee within it, the employer is usually responsible for paying the cost of the employee obtaining legal advice on the terms of the agreement.

This is because an employee must receive advice from a qualified independent legal adviser before the agreement becomes legally binding. Once the employee has had the terms of the agreement explained to them, and their legal adviser is happy that they have understood those terms, they are able to sign the agreement or negotiate amendments with their employer accordingly.