Settlement agreements or compromise agreements as they were known allowed Employers and Employees to mutually end the employment relationship by providing a sum of money and/or reference to the Employee in order to avoid a tribunal claim of unfair dismissal against the Employer. 

Typically, ‘without prejudice’ conversations took place between both parties, which allowed the Employer to negotiate a settlement with an Employee without the worry of it being used as evidence against them in a tribunal.  However, a ‘without prejudice’ conversation could only apply if there was an existing dispute.

Since July 2013, Section 111a of the Employment Rights Act 1996, allowed conversations to take place between Employer and Employee without an existing dispute.

How can Employer’s conduct a Settlement Conversation effectively?

Both prior and during the settlement conversation with the Employee, the Employer should ensure the following:

  • That the complaint against the Employee is not an automatically unfair reason for dismissal such as whistleblowing, union membership or is unrelated to unfair dismissal such as discrimination or victimisation. The Employer must be very careful that the reasons for discussing a settlement are genuine and are usually to avoid having to go down a disciplinary or grievance route.
  • That there is no improper behaviour during the settlement conversation. The Employer must ensure that they behave fairly and that no discrimination occurs during the conversation as this alone, may cause the Employee to make a claim to a tribunal.
  • That there is reasonable timescale for the Employee to consider the settlement offered and to seek independent advice. A general rule is a minimum period of 10 calendar days although this can be shorter if agreed between both parties.
  • Although it is not a legal requirement, it may be best practice by the Employer to allow the Employee to be accompanied to the settlement conversation by a work colleague or trade union representative. In some cases, this may speed up the settlement process.

What is improper behaviour?

Examples are not limited to the below.  Ultimately a tribunal will decide what constitutes any improper behaviour so it is vital that the Employer behaves fairly during the settlement conversation.

  • All forms of harassment, bullying or intimidation, including the use of offensive words or aggressive behaviour
  • Physical assault or threat of physical assault and other criminal behaviour
  • All forms of victimisation
  • Discrimination because of age, sex, race, disability, sexual orientation, religion or belief, transgender, pregnancy and maternity and marriage
  • Not giving enough time to the Employee to consider the agreement
  • Threatening the Employee with dismissal if they do not agree

Improper behaviour could also relate to the Employee threatening to undermine the reputation of the Organisation, (unless there are Whistleblowing implications).

What happens if an Employee agrees a Settlement?

For a settlement agreement to be legally valid the following conditions must be met:

  • The agreement must be in writing
  • The agreement must relate to a particular complaint, it is not enough to say ‘in full and final settlement of all claims’.
  • The Employee must have received advice from a relevant independent adviser such as a qualified lawyer or independent trade union member. The adviser must have a current contract of insurance of professional indemnity insurance covering the risk of the claim in respect of the Employee suffering a loss arising from that advice
  • The agreement must identify the Adviser
  • The agreement must state that the applicable statutory conditions regulating the settlement agreement have been satisfied.

What happens if the Employee rejects the Settlement?

Settlement agreements are entirely voluntary and the Employee (and in some cases the Employer) is not required to enter into a settlement conversation if they do not want to.

Depending on the nature of the complaint, the Employer must act fairly and reasonably and follow a route of disciplinary, grievance or capability. Any rejection of the settlement agreement should not form part of any process and it should not be referred to.

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