Top 10 Settlement Agreement tips for employers

21st March 2024

The purpose of a Settlement Agreement is to bring an employment relationship to an end by mutual agreement.

Employers may wish to consider offering a Settlement Agreement to an employee when a dispute has arisen, if they anticipate a dispute may arise or to avoid going through a lengthy process, for example, disciplinary or redundancy. It further avoids the risk of a dispute or Tribunal claim.

Below are our top 10 tips to keep in mind:

1. Be prepared

Assess the financial offer you intend to put forward to the employee. It is important for the offer to be financially attractive to the employee. The offer must include notice pay and any accrued but untaken holiday pay calculated up to the termination date, along with a contribution to their legal fees for advice on the terms and effect of the agreement. In addition to contractual entitlements the employer needs to consider a compensation payment for loss of employment and an agreed reference.

2. Section 111A ERA 1996 or without prejudice?

This is often something employers and employees can get confused as both section 111A and without prejudice are very similar.

Section 111A does work alongside the without prejudice rule. In general:

  • Without prejudice is used for off the record conversations when a dispute has arisen; and
  • Section 111A is a protected conversation to hold pre-termination discussions when there is no existing dispute.
3. Think about who is best to deliver the offer

These types of negotiations can be stressful for employees so think about the person who is best suited to deliver the offer. Use someone who is trusted by the employee, who has a good relationship with the employee and is not involved in any (anticipated) dispute.

4. Prepare the offer

Ensure the individual you have instructed is aware of all the key terms, the reason for the offer and how they need to approach the employee. Give them all the information available prior to approaching the employee.

5. Hold a meeting with the employee

It is important to ensure that you are as open and transparent as possible, holding a meeting with the employee prior to putting forward the offer in writing ensures it is not out of the blue and the employee can ask questions.

6. Communication is key

The individual needs to be able to discuss the issues and proposal in a clear, empathetic and confident manner. The individual’s attitude toward communicating the offer will have a big impact on how it is received by the employee. Do not use heavy handed negotiation tactics to keep a positive and open relationship.  It is always advisable to frame the offer as an “option” for the employee to consider.

7. Give the employee time to think about the offer

 An employee will need a reasonable amount of time to think about the offer and instruct a qualified legal adviser. ACAS guidance suggests an employee should be given 10 working days to consider an offer. You will need to take this in consideration when thinking about what date to propose for the termination date.

8. Ensure all verbal and written conversations are recorded as section 111A or without prejudice  

All communications relating to the negotiations need to be recorded as section 111A or without prejudice. If there is a process ongoing, for example, a grievance process, ensure this is communicated separately to keep the lines of communication clear.

9. Have a plan B

Think about what you need to do if the employee rejects the offer. You need to be prepared to commence or continue with any process that needs to take place. The employee should not be treated any differently if they decide to reject the offer.

10. Seek legal advice

It is always advisable to seek legal advice prior to commencing settlement negotiations or any process that needs to be carried out to avoid any risk of a dispute or Tribunal claim.

Need more information?

For more information on these changes or assistance with updating your policies or contracts, you can contact our Employment Client Services team on employmentinfo@daslaw.co.uk or call on 0344 2640102.

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