The handling of a redundancy process can be complex and timely, particularly for large scale redundancies so it is common practice for employers to offer an enhanced redundancy payment as an incentive to reach a settlement with any affected employees.  Where an agreement is reached and the employee signs a settlement agreement accepting the termination of their employment, this then avoids the need to carry out a lengthy consultation process and minimises the risk of future claims in the Employment Tribunal.  It can also be carried out in a confidential manner meaning that it does not affect the morale of the wider workforce.

Settlement agreements (previously known as compromise agreements) are widely used by employers as a method of settling any employment claims that an employee may have against their business and to agree the arrangements surrounding the termination of the employee’s employment.  Entering into a settlement agreement is often attractive for both parties as it provides certainty, resolves the dispute and allows both parties to move on.  It is a process than can also be concluded relatively quickly and cheaply in comparison to a lengthy redundancy consultation which even where done correctly, could result in a claim in the Employment Tribunal against the business.

Some employees may prefer this option in comparison to a consultation process where there is a lot of stress and uncertainty concerning their employment future.

Most legal claims can be waived by the employee signing a settlement agreement.  This means that the employer is protected and can avoid the management time and legal costs in defending claims along with any adverse publicity that may be caused by an employee bringing a claim.

A settlement agreement can include terms to protect the business’s reputation including confidentiality and non-derogatory comments clauses.  It can also include post-termination restrictions (also known as restrictive covenants) to protect the business’ interests by restricting the employee’s activities for a period of time after the employee’s employment has ended or refer to any existing restrictions already contained within the employee’s contract if applicable.

Before entering into a settlement agreement, an employee must receive independent legal advice as to the terms and the effects of the agreement and on their ability to pursue any claims.  It is customary for an employer to pay the employee’s legal costs for advice on the terms of the settlement agreement.

Where an employer is offering a number of staff a settlement agreement who will all require independent legal advice, this can be a considerable effort particularly where a number of different solicitors are instructed to act for each employee to advise them on the terms.  However, to streamline the process, it is possible for the employer to direct employees to a single solicitors firm to advise all the employees on the settlement agreement.  This scenario is acceptable provided that the legal adviser is not employed or acting for the employer or any associated employer.

The following steps can be implemented to streamline and simplify the process where one firm is instructed to act for a number of employees who are offered settlement agreements by the same employer:

  • Review the initial draft settlement agreement prior to it being handed out to each employee to check the general drafting is adequate and remove common points of contention. This will save time and cost;

  • Hold meetings at the employees’ place of work for convenience and to minimise the disruption to the working day;

  • Prepare a frequently asked questions document to be handed to employees to explain the process;

  • Hold a group meeting with employees to advise on the general process;

  • Following the group meeting, hold individual consultation meetings with each employee in private to take their full instructions and advise them on the terms of the agreement; and

  • Advice can be provided at one site or multiple sites depending on the location of the employees affected.

Farleys regularly advise employees on settlement agreements and can conduct the above steps to ensure the process runs smoothly. If you are an employee and require advice on the terms of a settlement agreement that has been offered to you, you are a business that requires advice on a possible redundancy situation or you are a business that wishes to arrange for a firm of solicitors to advise your employee or employees on the terms of a settlement agreement, please contact us on 0845 287 0939 or submit your enquiry online.