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All you need to know about Settlement Agreements

Settlement Agreements
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It’s tough running a business, and when there are employee issues it can become even tougher.

However, some employee problems may not be as simple to solve. Unhappy employees can be a drain on your business – lower productivity, reduced morale and the looming spectre of Tribunals can keep business owners up at night.

There could be a (relatively) pain-free solution to a poor employment relationship though – a Settlement Agreement.

What is a Settlement Agreement?

Essentially, a Settlement Agreement is a legally binding document, where the employee waives their employment rights (such as further legal action or a Tribunal) for a financial payment.

If your employee is entering a grievance or performance management procedure, and both parties agree that going separate ways is best, then a Settlement Agreement can formalise that and make it a quicker end than a drawn-out process of formal meetings.

If you are having to make a post redundant, a Settlement Agreement can avoid the consultation period, and give an employee a ‘golden goodbye’ in a shorter time frame.

If an employee is filing an unfair dismissal or discrimination claim with the aim of getting to a Tribunal hearing, a Settlement Agreement can get the matter dealt with out of court.

A Settlement Agreement, then, is a legally binding, mutually acceptable permanent resolution to an employment disagreement.

What is the Process for a Settlement Agreement?

The first thing you need to do is get legal advice – preferably from an independent lawyer who is familiar with Settlement Agreements. As these are legally binding documents, they must be drawn up by a lawyer, and their name must be included.

The Settlement Agreement must be presented in writing to the employee, and usually contains several points that instruct the employee that they waive any rights to future legal action. It is a usual practice that this Agreement has a confidentiality clause that prevents the employee from discussing the terms of the Agreement, the amount of financial payment and the reasons for the Agreement to be made.

As this is to be mutually beneficial, the document must outline in detail the amount of financial payment offered, the dates it will be paid, and any other benefits the employee will receive – like a reference for future employment (although this isn’t a legal requirement, it can make the offer more acceptable for the employee).

Make sure that the employee seeks their own legal advice and remember that the employee doesn’t have to accept – in any case, be prepared for negotiation over terms and clauses.

You must give the employee a reasonable amount of time to consider – ACAS recommends 10 Calendar days unless agreed otherwise.

To make the document legally binding, both parties must sign, and then any breach by either party can be taken to County Court.

A Settlement Agreement can be the permanent resolution to an employment disagreement that brings the matter to a close in a way that is beneficial to both the employee and the employer.

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