When Can You Offer a Settlement Agreement? A Guide for Employers

As an employer, you may encounter situations in which you want to offer a settlement agreement to an employee. However, there are certain legal requirements that need to be met before you can do so. This article will guide you through the key considerations and steps to follow when offering a settlement agreement.

What is a Settlement Agreement?

A settlement agreement is a legally binding contract that sets out the terms of an agreement between an employer and employee. It is typically used to resolve disputes or end the employment relationship in a mutually beneficial way. The agreement usually involves the employee receiving a financial settlement in exchange for agreeing not to pursue legal action against the employer.

When Can You Offer a Settlement Agreement?

There are three main scenarios in which you may consider offering a settlement agreement:

1. Dismissal: If you are considering dismissing an employee, a settlement agreement can be an effective way to avoid the risk of an employment tribunal claim. You may choose to offer a settlement agreement as an alternative to a lengthy and costly dismissal process.

2. Redundancy: If you are making redundancies, you may choose to offer a settlement agreement to affected employees. This can be a way to avoid the risk of claims for unfair dismissal or discrimination.

3. Dispute Resolution: If there is an ongoing dispute with an employee, a settlement agreement can be used to bring the matter to a swift and amicable conclusion. This may involve resolving issues such as pay, working conditions or other aspects of the employment relationship.

How to Offer a Settlement Agreement

If you decide to offer a settlement agreement, there are several steps you need to follow to ensure that it is legally valid and binding:

1. Initiate Negotiations: You should start by initiating negotiations with the employee. This may involve setting out your initial offer in writing and arranging a meeting to discuss the terms.

2. Get Legal Advice: It is a legal requirement for the employee to receive independent legal advice before signing a settlement agreement. You should provide a list of independent legal advisers who the employee can choose from.

3. Draft the Agreement: Once the terms have been agreed, you need to draft the settlement agreement. This should include details such as the agreed settlement figure, the reason for the agreement, and any non-disclosure or non-compete clauses.

4. Review and Sign: Both parties should review the settlement agreement and sign it if they agree to the terms. The agreement will only become legally binding once it has been signed by both parties.

Conclusion

Offering a settlement agreement can be a useful tool for resolving disputes or ending the employment relationship in a mutually beneficial way. However, there are several legal requirements that need to be met before you can do so. By following the steps outlined in this article, you can ensure that your settlement agreement is legally valid and binding.