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Settlement agreements

August 5th, 2013

The 29 July saw various changes in the world of employment law. Prior to this date, employers and employees could only discuss the termination of an employee’s employment without following the correct legal processes with a fear that the employee may then use these discussions to claim a breach of trust and confidence. The employee could then claim constructive unfair dismissal and might succeed in such a claim against the employer in the employment tribunal.

As of 29 July 2013, however, these kind of “off the record” discussions are protected in most circumstances. It is now therefore possible for employers and employees to approach one another about terminating the contract of employment on a mutually confidential basis without fear of subsequent ET proceedings. Provided neither party acts “unreasonably”, the discussions cannot be raised in any subsequent ET proceedings for unfair dismissal.

Sometimes an employer may need to make redundancies, but many employers know that following the necessary redundancy processes can be time consuming and create bad morale amongst the entire workforce. Sometimes a long-standing employee may not “gel” with a new manager. In these types of scenarios, and others, provided the employer and employee approach the discussions with care, they can speak with one another amicably about terminating the employment contract with a view to entering into a settlement agreement. A settlement agreement of this nature is the re-branded cousin of its predecessor, the compromise agreement, which may be the more familiar name to our clients.

A Settlement Agreement records the agreed terms reached between the employer and the employee. By signing the Settlement Agreement, the employee is prevented from bringing any claims against the employer in the Employment Tribunal or the County Courts. The employer will usually make a payment to the employee in return for this, such as an enhanced redundancy or notice payment. We would always advise an employer to seek legal advice prior to raising any discussions with the employee, to ensure the discussions are handled in the right way to ensure they will be covered by this new protection, and prior to drafting the Agreement in order to ensure that the agreement will be legally binding on the employee once signed. Before signing a Settlement Agreement, the employee must obtain independent legal advice so they fully understand what they are signing up to. Lennons Solicitors offers both of these services to its clients.

The intention of the new rules on Settlement Agreements is that employers and employees can be more open with each other in discussing the termination of the employment contract without going down the formal redundancy or dismissal routes. Hopefully this relaxation of the rules, provided the situation is dealt with prudently and delicately, will allow both employers and employees to reach amicable settlements to potential disputes before they even arise.



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