Is a settlement agreement looming as the year draws to a close?

Is a settlement agreement looming as the year draws to a close?

Are you an employee facing a sudden offer of a settlement agreement or an employer managing workforce changes through this method?

Some employees can find themselves facing settlement agreements from their employers in the run up to December 31.

For a business, it can make strategic and financial sense to finalise these agreements before the end of the year, as plans for budgets and business restructuring aim to ensure a clean start for next year.  As an employee it can bring peace of mind and financial benefits.

Harriet Gardner, solicitor in the employment team at Wake Smith looks at settlement agreements.

This article covers:

• From an employer perspective
• From an employee perspective
• Key elements of a settlement agreement
• Our advice
• Your next move?

From an employer perspective

Employers want to settle disputes or terminate employment before the calendar year end to account for associated costs, ensuring a clean slate for 2025.

December is often the final phase of annual performance reviews and strategic planning. For underperforming employees or roles that are deemed redundant, employers want to avoid carrying these situations into the new year.

Offering a settlement agreement can provide a smooth and mutually agreed-upon exit, minimising potential disputes and safeguarding workplace morale for a refocus on growth and a new year.

Employers often prefer to finalise agreements before the Christmas holiday break to prevent workplace tensions from overshadowing celebrations. For employees, knowing their situation is resolved can offer peace of mind, enabling them to enjoy the season without ongoing uncertainty.

From an employee perspective

Employees can have legal claims under statutes, their employment contracts, and other common law rights.

These claims can arise for various reasons, often related to performance management, sickness absence, grievances, disciplinary issues, dismissal (including redundancy), or simply a breakdown in the employment relationship.

Key elements of a settlement agreement

Settlement agreements are often a useful tool to resolve claims in exchange for a payment to the employee. They are designed to avoid the time, expense, and uncertainty of litigation in the Employment Tribunal.

A settlement agreement should be drafted specifically for the circumstances to ensure it serves its intended purpose and meets the relevant statutory requirements to be legally binding.

Key elements of a settlement agreement include:

• The agreement will most likely require the employee to waive their right to bring a specific claim or proceeding (such as a claim for unfair dismissal).
• The termination date, which sets out the date on which the employee will leave the organisation. Termination of employment is the most common reason for a settlement agreement; however, such agreements can also be used when the employment is continuing.
• A reason for termination, which is not essential but is often described as "mutual agreement”.
• The termination payment, which is the most important aspect for the employee.
• Whether the employee will work their notice period or be paid in lieu of notice.
• Although the employer is not obligated to provide a reference, if one is to be given, the terms may be outlined in the agreement.
• Confidentiality clauses are commonly included, preventing the employee from disclosing the existence and terms of the agreement.
• If the employee has post-termination restrictions in their employment contract, these may be referenced in the agreement. If not, the agreement may introduce such restrictions.
• The employer typically contributes towards the employee’s legal fees.

Our advice

Navigating a settlement agreement can be complex, especially when it involves significant legal and financial considerations.

Our Employment solicitors in Sheffield offer fair, practical and effective advice on employment law and HR best practices for both individuals and businesses, so you can access the expert support you need to ensure a fair resolution.

We provide expert advice on:

• Understanding the terms and implications of a settlement agreement and your options.
• Negotiating better terms, including enhanced compensation and benefits.
• Ensuring compliance with employment law to protect your rights.

Your next move?

We offer a free initial consultation to help understand the issues, explore possible solutions, provide information on costs, and discuss funding options.

Whether you're an employee or an employer, we can provide tailored advice to ensure your interests are protected. Don't hesitate to reach out and give us a call today to discuss how we can assist you with your settlement agreement.

For more information call Harriet Gardner at Wake Smith Solicitors on 0114 223 2726 or email [email protected]

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 Published 28/11/2024