Settlement Agreements - what’s in a name?

Many people are familiar with the concept of ‘compromise agreements’, which are now known as settlement agreements. In short they are a legally binding agreement that ends the employment relationship on a set of agreed terms, and prevents an employee from pursuing the employment claims in the agreement. This usually involves the employer agreeing to pay an existing employee a sum of money in return for the employee promising not to bring any subsequent proceedings in the Tribunal against the employer. Therefore the employee is agreeing to waive certain rights in return for payment.

There are several conditions that must be met to create a valid compromise agreement, namely;

  • It must be made in writing;

  • It must relate to a particular complaint or set of proceedings;

  • The employee must have received advice from an ‘independent adviser’ regarding the terms and effects of the proposed agreement (an independent adviser must be either a qualified lawyer, a certified and authorised official, and employee or member of an independent trade union or a certified and authorised advice centre worker);

  • The Independent Adviser must have a current insurance certificate;

  • The agreement must identify the independent adviser; and

  • The agreement must state that the applicable statutory conditions have been met.

One particularly appealing element of using a compromise agreement is that, where there is an existing dispute between the parties, any correspondence that is sent in a genuine attempt to settle the dispute may be marked as ‘without prejudice’. This prevents such correspondence from being put before the tribunal in any subsequent claim should settlement attempts fail. It is however very important that there is a genuine dispute between the parties and on occasions employers have come unstuck as the courts have ruled that no genuine dispute existed and thus the so called without prejudice proviso did not work.

The clear benefit of without prejudice correspondence is that the Tribunal would not be able to see any commercially sensible offers that may have been made in the course of negotiation settlement which an employer may not want to a Judge to know about if defending a subsequent claim.

However, from 29 July 2013, certain changes came into force relating to settling claims under these types of agreement.

  1. The name of such agreements has been changed to ‘settlement agreements’. The rationale is that the word ‘compromise’ does not encourage people to consider settlement.

  2. S111A of the Employment Rights Act 2996 has been inserted which extends the concept of the without prejudice rule. ‘Pretermination negotiations’ that take place before there is even a dispute cannot be referred to in an ordinary unfair dismissal case unless there has been ‘improper behaviour’. Effectively the new provisions mean that the parties can discuss details of settlement from the outset without having the discussion raised in any subsequent case which seeks to afford an employer with more protection than the without prejudice rule alone. In many ways this is controversial and we will therefore be including a separate note on this in next month’s Employment Matters.

  3. ‘Improper behaviour relates to anything said or done which, in the Tribunal’s view, was improper. In such cases the above rule would only apply if the Judge felt it was ‘just’.

Should you have any further queries relating to settling claims in general or the new provisions specifically please contact a member of the Employment and HR team.

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