Employer Penalties and Settlement Agreements.

Settlement agreements normally compensate for any claims that employees may have.

In April the government is expected to introduce measures that will allow tribunals to levy penalties on employers who lose their case and are found to have breached employment law rights if the tribunal consider that the breach had ‘one or more aggravating features.’

‘Aggravating features’ have not been defined but early indications point to malice or negligence on the part of the employer, taking into account the duration of the breach, the size of the employer and the circumstances of the case. Further guidance is expected shortly and will also no doubt be clarified in the case law developments.

The penalty will be a minimum of £100 and a maximum of £5,000, even when no financial award is made. If an award has been made, the penalty must be 50% of the award, subject to the minimum and maximum caps. If the employer pays within 21 days then only 50% of the penalty is payable. The penalty is not paid to the Claimant but to the Secretary of State.

Employees should therefore carefully consider whether their employers conduct may constitute such aggravating features when deciding whether to settle the matter or continue to litigate. The risk of a further £5,000 penalty on top of any compensatory award and legal costs may help to advance settlement agreement negotiations.

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