Settlement Agreements – How to Use Them

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ACAS Code – Settlement agreements
October 15, 2014
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Settlement Agreements were introduced in July 2013 as a legally binding alternative to the more high risk compromise agreements. We’ve summarised an essential guide to settlement agreements below to help you understand if its the right thing for you.

General Info

  • Either an employer or employee can propose a settlement agreement
  • A proposal can be made at any time during the employment relationship
  • Employee should be allowed to be accompanied to any meetings about settlement agreements
  • An offer to create a settlement agreement can be in strict confidence and will not be admissible at Tribunal as long as there is no improper behaviour

Improper Behaviour

  • This occurs where one party acts in a manner that would breach the requirement to keep settlement agreements confidential
  • Where there is improper behaviour anything said or done in pre-termination negotiations will be admissible as evidence in claims to an employment tribunal if the tribunal considers that just

Examples of improper behaviour are:

  • Bullying, harassing or intimidating behaviour
  • Actual or the threat of physical assault or other criminal behaviour
  • Victimisation
  • Discrimination
  • Putting undue pressure on a party to agree to a settlement such as not giving them reasonable time to consider an offer

The Settlement Offer

  • Any offer to reach a settlement does not have to be made in writing but is good practice to do so (no need to send letters inviting to meetings etc)
  • The final version of the settlement agreement should be made in writing and ACAS provide a simple template to do this (see below)
  • Settlement offers should set out what is being offered financially as well as what issues the settlement agreement is addressing
  • The employer and employee should be given/give reasonable time to consider an offer
  • Employees must be given 10 calendar days from an offer being made to consider the offer and allow them to seek independent legal advice

Financial Settlement

  • Employees can either be paid in lieu of notice or agree to work some or all of their notice period
  • Employee are entitled to any outstanding holiday pay
  • Employee are entitled to receive a settlement payment (classed as compensation) which can be the sum an employee is entitled to if they were made redundant. This can then be enhanced if needed to secure agreement to an offer

Agreement to a Settlement Offer

  • The employee cannot bring a claim at a Tribunal hearing for items that are listed in the settlement agreement
  • The employees contract can be terminated, with or without notice depending on what is written into the agreement

No Agreement to a Settlement Offer

  • The employee remains employed by the business on their normal terms
  • The employer must follow a normal process to dismiss the employee
  • The employee retains the right to claim unfair dismissal if the employer fails to follow a fair and reasonable process (e.g valid disciplinary or redundancy process)

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