What? A settlement agreement is a legally binding contract made between an employer and employee that can be used to mutually bring an employment relationship to an end. The contract will set out the terms of the dismissal and once signed by both parties prohibits an employee from bringing legal action about the dismissal against the employer.
Why? Going through a formal processes can sometimes be time consuming and costly to the business and therefore a settlement agreement is a potentially quick solution, though remember this shouldn’t replace a formal process on every occasion. In return for ending the employment a termination payment is made which is also set out in the agreement.
When? Settlement agreements are used to bring an end to a working relationship in a mutually agreeable way.
Our Top Tips
- Be honest and open at the start, this can be a difficult conversation.
- Agree your limits on the settlement terms before you start the negotiation and always be realistic.
- Ensure your offer has well defined timescales. You must give the employee at least 10 days to consider the offer. They will appoint a legal representative who will act on their behalf.
- Remember you are dealing with a person; they will go through a circle of emotion. Stay calm and composed throughout the process; demonstrate empathy but ensure you stick to the facts.
- Concluding the agreement can be difficult and you should be prepared for some negotiation. Once the employee has instructed a legal rep they may request wording or the final settlement to be amended. Remember you are in control of this process and if you are not happy with the amendments, do not agree. Be prepared to walk away if it is not right for your business.
Our Consultants are very experienced with the settlement agreement process and are on hand to advise you.