Thursday April 16, 2020
Matthew Taylor explains what Settlement Agreements are and when they are used in this article. Please contact Matthew on 01204 377600 if you need further help.
In light of the ongoing Coronavirus pandemic, many employment lawyers up and down the country are being inundated with queries regarding Settlement Agreements. But what are they? When can they be used? And who do they benefit more – the Employer or the Employee?
A Settlement Agreement is a formal, legally-binding agreement which is typically entered into between an Employer and an Employee when they have agreed to go their separate ways.
Whilst the exact content of the Agreement will differ depending on the circumstances, it is common to find that the Agreement will usually deal with the following issues:
Other clauses can also include such things as garden leave, resignation as a Director from the company, the transfer of any shareholdings of the Employee, together with any property of the Employer which the Employee is to keep rather than return.
As stated above, an Agreement will normally, though not necessarily, be entered into following events where the Employee could potentially sue their Employer. An obvious example is where an Employee is being redundant, though disagrees with the process being followed by the Employer and has indicated that they will challenge this – including by way of commencing Tribunal proceedings if the Employee is ultimately made redundant.
Likewise, scenarios often arise where an Employee may feel as though there is a breakdown of trust between them and their Employer. As such, rather than risk Tribunal proceedings being issued, an Employer may suggest that both parties agree to part ways, and enter into a Settlement Agreement in order to facilitate this.
In short, you will often see the Agreements in scenarios where dismissal on the cards, or where the Employee themselves is threatening to take further action in respect of an issue, such as by making a Grievance.
The useful thing about such Agreements is that they allow both parties to bring about a swift, fair resolution to what would otherwise be a prolonged, stressful alternative.
From an Employer’s perspective, a Settlement Agreement saves the time, effort and cost which would come in seeking to defend any Tribunal proceedings commenced by an Employee, with such resources instead being channeled back into the business.
Likewise, from an Employee’s perspective, Tribunal proceedings should (as with any litigation) be an option of last resort. Aside from the stress and uncertainty caused by such proceedings, Employees have to bear in mind that the default rule in Tribunal proceedings is that each side bear their own legal costs – regardless of who ‘wins’ at the end. Whilst there are exceptions to this, they are few and far between. To that end, an Agreement not only ensures that the Employee is compensated for the claims which they could potentially have brought against their Employer, but it also ensures their personal finances are preserved, rather than potentially thousands of pounds being incurred in legal fees. A common benefit to both parties is that a clear line is also drawn under the matter, with each side being free to simply get on with their lives.
If you would like advice regarding any of the above, please contact our Dispute Resolution Team on 01204 377600 or email email@example.com.