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Exhausted options? Considerations for ending employment

October 2020

The decision to end employment

The decision to make redundancies is never one that is taken lightly, though the chance of us seeing further redundancies in the coming months seems increasingly likely.  We have covered extensively over the last few months key considerations when making employees redundant and some of the alternative options employers could consider.  Sometimes, the only viable option will be redundancy.

Where this is the case, employers must ensure that they follow correct procedures and apply them fairly.  As part of this process, employers should look to enter into Settlement Agreements with any employees that are made redundant.

Settlement Agreements

A settlement agreement (formerly known as a compromise agreement) is a legally binding contract made between employer and employee.   At the heart of the agreement is a waiver of claims (by the employee) in return for payment (made by the employer).  

It is commonly used as a means of ending employment on agreed terms and compromising an employee’s contractual and statutory claims.  It is also occasionally used where employment is ongoing, but both the employer and employee want to settle a dispute that has arisen between them.  The employee will almost certainly waive their right to issue proceedings against an employer.

Settlement agreements that have been properly drafted are legally binding.  For this reason, employees should seek independent legal advice on the terms and effects of the settlement agreement before signing as otherwise the agreement may not be legally binding. In most cases, an employer will contribute towards the legal costs of the employee in receiving such advice.

What are the advantages of a settlement agreement?

In most cases, a settlement agreement will hold advantages for both the employee and employer. It acts as a means of providing certainty to both parties and, from the employer’s perspective, will avoid the potentially negative publicity that employment tribunal cases sometimes involve, when a robust confidentiality clause is included.  

Provided the settlement agreement has been properly drafted, it is a means of bringing a swift and certain end to employment or a dispute. The employer has the certainty that an employee can no longer bring a claim against them and take them to an employment tribunal and the employee will receive a financial package without the costs or risks of litigation.

In addition, a settlement agreement can be drafted to include matters that a tribunal cannot deal with, such as agreed employment reference, an announcement to colleagues or clients or outplacement support. 

How we can help

Lawrence Stephens has extensive experience in advising on redundancy situations, drafting settlement agreements and providing related legal advice. We can provide support in relation to a settlement agreement that has already been drafted and supplied to an employee, as well as an expert opinion for a fair settlement agreement, and assistance negotiating a settlement agreement. If we can help you with any of your employment matters, please do not hesitate to get in touch.