Shiva Shadi – Partner and Head of Employment – discusses negotiating settlement agreements.

Settlement Agreements have long been used by employers in many different scenarios, but normally it is in connection with termination of employment on terms to be mutually agreed and sometimes to curtail a legal dispute that may otherwise follow.   This could be as a result of numerous reasons such as:

  • changes within the organisation;
  • perceived under performance;
  • repeated conduct concerns; or
  • an enhanced payment over and above contract provisions.

However, employers need to tread carefully before launching into such conversations with their employees in order to part ways. Employers should ensure there is a specific issue as otherwise an employee may perceive the conversation as a breach of their contract, as well as breach of the implied term of trust and confidence allowing an employee to claim constructive dismissal.

Employers could also find themselves facing claims of discrimination or victimisation if the situation is not handled carefully and with prior thought.

Furthermore employees may use a settlement offer which they have rejected as evidence that any further disciplinary or performance procedure is a sham.

It is therefore crucial to take legal advice before such discussions take place, so that what is already a difficult scenario does not turn into a much larger problem for an employer to try and resolve.

Since July 2013 there has also been an alternative vehicle for such discussions referred to as “Protected Conversations”.

These were introduced with a view to simplifying the initiation of such discussions with employees and to reduce the risk of the conversations being admissible.   However this has led to difficulties for employers who are not fully aware of the framework within which they can navigate such discussions and for them not to be admissible in subsequent tribunal proceedings.

“Protected Conversations” are only inadmissible in straightforward unfair dismissal cases and not where the dismissal is for one of the automatically unfair reasons or cases involving discrimination, unlawful detriment and breach of contract.   If any of these areas are an issue then as an employer you should be relying on “without prejudice” discussions rather than “Protected Conversations”.

We would therefore always advise employers to:-

  • Firstly consider whether it is appropriate to have the initial conversation and to consider the risks before proceeding?
  • If so, secondly is it appropriate to have a “without prejudice” discussion or a “Protected Conversation”?
  • Decide whether you are going to notify the employee prior to having the discussion or if the discussion is going to take place without prior notice.
  • Prepare a script in advance so that there is sufficient information for the employee to understand the basis of why the conversation is taking place and the potential outcomes of not coming to an agreement on a settlement package.
  • Give the employee time to consider the offer that you are making.  It is always helpful to put the offer in writing for them, ensuring that it is marked “without prejudice” or “Protected Conversation”.  Whilst you should give them a reasonable period to consider the offer,  at the same time set a deadline to ensure it is not dragged out unnecessarily.
  • Once agreement is reached, it is crucial that an appropriate Settlement Agreement is drafted, which once entered into can be relied on.

The Employment Team at Davis Blank Furniss can advise you on all the necessary steps and provide guidance for employers throughout negotiating Settlement Agreements as well as drafting Settlement Agreements that will be enforceable and protect your employers.

The Employment Team can be contacted on 0161 832 3304.

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