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Gordon Turner Employment Lawyers

7 minutes reading time (1344 words)

Negotiating a Settlement Agreement – April 22

Relations between an employer and an employee can become fragile in which case it can be much better to ‘cut to the chase’ and discuss an amicable way forward…why not pause the negative thoughts and see if the parties can create a way forward and to better things?

Starting discussions can be tricky…if an agreement isn’t reached and the employee stays there’s a risk that even mentioning an agreed departure may cause difficulties.

There’s no 100% guaranteed way of going about this but here’s some guidance which might help you along the way. I have prepared this on a neutral basis so employers and employees can hopefully use it.

1. Have a picture of a better future- we have a peculiar habit of dwelling on things, overworking anger, and sadly this can be at the expense of what’s next which may be much better! It’s not difficult these days to get ideas of what’s out there. Why not visit the Office for National Statistics on the job market for example? …Or do a search on available jobs of the kind of work the employee does- at the current place of work and their home postcode. It’s possible there may even be a better paid, more suitable job out there and the change (if carefully handled) could be a springboard to that.

Here's a link to a fairly upbeat review of the job market by the ONS: 

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/
employmentandemployeetypes/bulletins/uklabourmarket/latest

2. Procedures- You don’t want to be or sound over legalistic but mention the ACAS Code & section 111A Employment Rights Act 1996 which allow people to have ‘off the record’ discussion. Ideally this should be confirmed in a friendly letter before any detailed meeting. Employees need to know this is accepted practice. These discussions are called ‘protected conversations.’

3. Confidentiality- This is in everyone’s interests. Employers won’t be so keen to make offers if they feel that this may lead to copycat claims. Employees should make it clear that they understand and respect this and Employers should seek written assurances of confidentiality or make it the first item on the agenda. It’s an important term in the Settlement Agreement and ‘spilling the beans’ can result in the Employee having to repay the compensation!

4. ACAS Guidance- Download a copy of the ACAS booklet 'Settlement Agreements: a Guide' and make sure everyone has a copy.

The Guide explains the standards to be applied and what amounts to ‘improper behaviour’ (eg: where a party uses bullying tactics) so both parties must be polite and fair to benefit from the procedure.

5. Without prejudice- Discussions to reach a settlement agreement in relation to an existing employment dispute are normally ‘without prejudice.’ Any comments made during meetings or in communications can’t be used in Tribunal. Make this clear in correspondence and at the beginning of meetings so everyone can feel free to speak openly. The without prejudice rule only applies where there is an existing dispute so if that isn’t the case make sure you formally rely on Section 111A by making it clear it’s a Protected Conversation. Better to take a bit of legal advice at this stage.

6. Settlement agreements- Settlement Agreements are the only legal way of reaching a settlement for employment claims; they tidy up all the issues for both parties but can be tailored to add specific arrangements.

7. Starting the conversation- a good way to open the meeting is to state objectives and intentions. Avoid trading allegations or making demands. Try to keep this neutral…eg: My ideal outcome would be a dignified exit where we remain friends and you get a reasonable financial cushion whilst looking for another job… This should establish common ground.

8. Fixing things- large compensation awards are only necessary when something’s been broken... far better to fix the thing itself or make sure it’s not damaged at all. Think about reputations, career progress, health etc. and look at non-monetary solutions for how to protect them. The stated reason for a departure will be important… An employee who leaves due to restructuring will fare much better than where conduct or capability is the reason given. One of the upsides of negotiated exits after Lockdown and with the international situation is that there is a lot of restructuring out there. Employees are unlikely to be judged by future employers on this ground. Remember, a Settlement Agreement can contain any term the parties agree so have an open mind about how to sort things.

9. Timing- Employers should factor in the frame of mind of an employee when confronted with an imminent exit. The employer will have had time to think in advance and it won’t be personal. It can be helpful to mention a Protected Conversation before the weekend to give the employee time to decompress. This tends to be less disruptive to the team and employees often want to talk to their partner. Avoid giving an ultimatum; people don’t trust deals which are being pushed at them down a barrel. The ACAS Code suggest 10 days. People respond much better when allowed to reach their own conclusions.

10. Key benefits of Settlement- Everyone needs to keep in mind the major advantages of settling a potential dispute which include:

Avoiding legal costs (the employer pays for advice on the agreement- but an employee may lose anything up to a third of any deal if they use a ‘no win no fee’ lawyer

Reputations/publicity- tribunal judgements carry a full account of the facts of any dispute and are readily available on the Internet. Settlements have confidentiality clauses.

Tax efficiency- a non- contractual (ex gratia) payment can be made tax free up to £30k and so can pension contributions.

Stress- people have no idea how much strain a tribunal case carries. It’s very intimidating to be sat in a tribunal glancing across at faces people you once worked with. The prospect of losing in public is really grim.

11. Compensation/Redundancy – If you go down the redundancy route there is a fixed method of calculating the amount as follows:

    • ½ week’s pay for each year of employment up to age 22
    • 1 week’s pay for each year of employment between the ages of 22 and 40
    • 5 week’s pay for each year of employment aged 41 or over

The following caps apply:

A week’s pay- £571

Length of service- 20 years

12. Reductions to compensation- The maximum award for lost earnings is £93,878. Most awards are well below this.

Whilst an unfair procedure can lead to a paper finding of unfair dismissal, this does not mean the employee would get a large award, for example if the employee would have been dismissed in any event (had a better procedure taken place).

A tribunal can also reduce the compensatory award if it finds an employee contributed in some way to the dismissal.

A tribunal will also expect an employee to provide evidence that they’ve made reasonable efforts to find another job.

What’s the pain to gain ratio!

The employer and employee need to think about the NET benefit of any settlement compared to a dispute. If there’s an offer of £15,000 on the table for example, then going to tribunal for £30,000- taking account of legal costs, lost tax advantages and litigation risk -would probably be a very unsatisfactory exercise even with a ‘win.’

Both parties need to be realistic. An employer needs to think of the costs of litigation and the more general disruption which follows a dispute.

For more information, contact Gordon Turner – 07527 261 926 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

Settling a dispute - the power of ‘boring’

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