Settlement agreement templates toolkit

A Settlement Agreement is a legally binding contract made between an employee and employee. It is usually entered into at the termination of employment and sets out the full terms between the parties.

Settlement agreements can also be used to resolve an ongoing workplace dispute, for example, a dispute over holiday pay. These agreements can be proposed by either an employer or an employee, although it will normally be the employer.

Once a valid settlement agreement has been signed, the employee will be unable to make an employment tribunal claim about any type of claim which is listed on the agreement.

Where the employer and employee are unable to reach an agreement, the settlement discussions cannot usually be referred to as evidence in any subsequent unfair dismissal claim. Where the settlement discussions are held to resolve an existing dispute between the parties they cannot be used as evidence in any type of claim.

• Settlement agreements can be used to settle a wide range of employment-related disputes, including claims for unfair dismissal, discrimination, breach of contract, and more.

• For a settlement agreement to be legally binding, it must meet certain requirements, such as being in writing and signed by both parties, and the employee must have received independent legal advice on the terms and effect of the agreement.

• In exchange for the employee agreeing to settle any potential claims, the employer will typically offer a financial settlement, which may include a sum of money, a reference, and other benefits.

• Settlement agreements are voluntary, and the employee has the right to reject the proposed terms if they are not satisfactory. However, if the employee rejects the agreement, they may lose the opportunity to receive the financial settlement offered.

• Settlement agreements can be a useful tool for employers to manage and resolve disputes with employees, as they can help to avoid the time, expense, and uncertainty of litigation.

• However, settlement agreements are not always appropriate or effective, and employers should carefully consider the specific circumstances of each case before proposing a settlement agreement.

• Employers must ensure that settlement agreements comply with relevant employment law and do not attempt to waive an employee's statutory rights, such as the right to bring a claim for discrimination.

• If a settlement agreement is reached, it will typically include a confidentiality clause, which prohibits both parties from discussing the details of the agreement with third parties.

Navigating Settlement agreement processes correctly is crucial to help you avoid any problems (which can be costly in terms of time, money and reputation).

Recent UK case law has highlighted key aspects of good Settlement agreement management. Knowing how courts have handled claims can help you assess whether your proposed actions are likely to be seen as reasonable.

Here are some notable rulings and their implications:

• Faithorn Farrell Timms LLP v. Bailey (2016):

  Facts: The case involved a dispute over the admissibility of a settlement offer made during a protected conversation under Section 111A of the Employment Rights Act 1996. The employee, Ms. Bailey, claimed constructive dismissal and sought to use the content of the protected conversation as evidence.

  Outcome: The Employment Appeal Tribunal (EAT) ruled that the content of the protected conversation was inadmissible in unfair dismissal claims unless there was improper behaviour.

  Key takeaway: This case reinforced the principle that protected conversations are generally confidential and cannot be used in tribunal proceedings, except where there is evidence of improper behaviour such as harassment or bullying.

• Basra v. BJSS Ltd (2017):

  Facts: Mr. Basra claimed that he had been unfairly dismissed after being asked to resign during a protected conversation. He argued that the conversation itself constituted improper behaviour, making the subsequent settlement agreement invalid.

  Outcome: The EAT held that the determination of whether a protected conversation had been conducted properly was a preliminary issue. If the conversation involved improper behaviour, it would not be protected, and its content could be admissible in tribunal proceedings.

  Key takeaway: This case highlighted that the protection of such conversations is contingent on the absence of improper conduct.

• Lenlyn UK Ltd v. Kular (2019):

  Facts: The case involved a dispute over a settlement agreement reached during a protected conversation. The employee, Mr. Kular, claimed that he was coerced into signing the agreement and that it should be set aside.

  Outcome: The EAT found that for a settlement agreement to be valid, it must be entered into voluntarily and with a full understanding of its terms.

  Key takeaway: The tribunal emphasised the importance of ensuring that employees are not pressured or coerced into accepting settlement agreements during protected conversations.

• Sudhakar v. Paragon Law Ltd (2020):

  Facts: Mr. Sudhakar argued that his employer, Paragon Law Ltd, had acted improperly during a protected conversation, making the resulting settlement agreement unenforceable.

  Outcome: The EAT reiterated that protected conversations are inadmissible in tribunal proceedings unless there is evidence of improper behaviour.

  Key takeaway: The tribunal also stressed the need for clear evidence of such behaviour to invalidate a settlement agreement reached during these discussions.

• Hirsch v. BMW (UK) Ltd (2021):

  Facts: Ms. Hirsch claimed that she had been subjected to undue pressure to sign a settlement agreement during a protected conversation. She argued that the agreement should be void due to the improper conduct of her employer.

  Outcome: The EAT found that undue pressure or coercion during a protected conversation constitutes improper behaviour, making the conversation and any resulting agreement inadmissible and unenforceable.

  Key takeaway: The case underscored the importance of ensuring that settlement negotiations are conducted fairly and without undue pressure.

• Graham v. Agilitas IT Solutions Ltd (2022):

  Facts: The claimant, Mr. Graham, disputed the validity of a settlement agreement signed during a protected conversation, alleging that he was not given sufficient time to consider the terms and seek independent legal advice.

  Outcome: The Employment Tribunal found in favour of Mr. Graham, ruling that the settlement agreement was unenforceable due to the lack of adequate time and opportunity to obtain legal advice.

  This case highlighted the necessity for employers to provide sufficient time for employees to consider settlement agreements and to seek independent legal advice.

Here are some conplex but common Settlement agreement-related workplace scenarios that need careful planning and execution to resolve.

We show you the steps to take to manage the specific case, along with what you should consider doing to minimise and mitigate any repeat.

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