Employers and employees always enter into employment contracts with the hope that the working relationship will be fruitful and mutually beneficial. In reality, however, disputes can and do arise in the course of employment. It is in the interests of both the employer and the employee to address any disputes as efficiently as possible. Settlement agreements offer a means to negotiate how best to resolve a dispute, while avoiding the risk of future dispute resolution proceedings. If you are an employer seeking help with any settlement agreement matter, please contact an employment law solicitor at Scott-Moncrieff & Associates for quick, clear and expert advice.

What is a settlement agreement?

A settlement agreement is a binding contract between the employer and the employee, according to which the employee waives his or her right to bring any claim covered by the agreement to a court or employment tribunal. As such, settlement agreements provide employers with peace of mind that satisfactory negotiations have been concluded, and that they will not later face the financial costs and loss of time associated with tribunal proceedings. 

Settlement agreements can be used at any stage of an employment relationship. If either party wishes to terminate the employment contract due to a perceived issue in the workplace, it may be in the interests of the employer to ensure that any claims which may arise from the course of the employment are dealt with in a settlement agreement. An ongoing dispute might also be resolved using a settlement agreement. For example, a dispute over working hours might be resolved by negotiating or renegotiating the relevant terms in the employee’s contract alongside concluding a settlement agreement preventing the employee from making a claim in respect of his or her previous working hours.

The agreement will generally provide that the employee is to receive a certain payment. If the agreement is concluded at the end of an employment relationship, the employer might also agree to provide a reference, and the agreement may provide for a shorter or longer notice period than that provided in the employment contract.

Ensuring the validity of a settlement agreement

It is important to ensure that the settlement agreement would, if challenged, be upheld by a court or employment tribunal. Otherwise, the agreement will not be enforceable and the employer will potentially face dispute resolution proceedings.

The key consideration is that the settlement agreement must be voluntary on the part of both parties. It is important to note that either party may withdraw from settlement negotiations. If an employee can show that they were coerced into signing the settlement agreement, it will not be upheld. Accordingly, the employee must be advised by an independent lawyer or an authorised member of a trade union. The employee must also be protected by their advisor’s insurance or professional indemnity cover in respect of loss resulting from the advice.

Further, the employee must have a suitable amount of time to consider the terms of the settlement agreement. A minimum of 10 calendar days is generally considered to be reasonable; however, this will vary according to the complexity and circumstances of the dispute in question.

Regarding the contents of the settlement agreement and its format, parties should bear in mind the following requirements:

  • A settlement agreement must in in writing.
  • The agreement must relate to a particular dispute, which should be accurately described in the agreement. An agreement cannot prevent an employee from making any claim against the employer; it must protect the employer from claims in respect of a particular complaint.
  • The settlement agreement must provide that the relevant statutory conditions are met.
  • The employee’s advisor must be identified in the settlement agreement.

At Scott-Moncrieff & Associates, our specialist employment lawyers have drafted numerous settlement agreements for employers in a diverse range of industries. Our team can ensure that your settlement agreements meet the relevant laws, protect your business from employment claims and uphold your business interests. We can advise at all stages of a settlement agreement negotiation. We can offer advice on whether this might be a suitable means of resolving a dispute, work with your employee’s advisor and draft the agreement. 

Settlement agreement negotiations

The employer and employee might negotiate over a prolonged period of time before a mutually acceptable agreement is reached. In some cases, the parties will be unable to reach an agreement, in which case evidence from the parties’ meetings cannot be used as evidence in subsequent employment claims. This is covered by the Employment Rights Act 1996 section 111A, which has been in force since the 1996 Act was amended by the Enterprise and Regulatory Reform Act 2013. The prospect of unsuccessful negotiations should not, therefore, deter employers from pursuing a settlement agreement.

The protections under the 1996 Act will not apply, however, where either party has behaved improperly during the discussions or negotiations concerning the settlement agreement. The question of whether the employer or employee has behaved inappropriately will be determined on a case-by-case basis by the court or employment tribunal. For example, the agreement will likely not be upheld if an employer threatens to dismiss the employee if he does not sign the settlement agreement. The agreement would be similarly unenforceable if the employee had threatened to disclose confidential information to competitors if the employer did not agree to terms proposed by the employee.

While the advisor need not accompany the employee to every meeting at which the settlement is negotiated, it is good practice for the employer to encourage the employee to attend with their advisor. This can ensure that negotiations are open and efficient.

Contact our Employment Law Solicitors London

Our specialist employment lawyers are experienced in resolving employment disputes and writing settlement agreements. We can sensitively negotiate terms of an agreement that will withstand legal challenge and protect your business interests. We are based in London and advise clients in a range of industry sectors across England. If you would like to discuss negotiating a settlement agreement with an employee, or have any other questions, please get in touch via our online contact form or call our team now on 020 3972 9011 .


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