Sometimes, employers use settlement agreements when an employee’s employment is being terminated. But why are they used? Here, we take a closer look at what they are and why an employer may choose to use one.

What Are Settlement Agreements?

Sometimes called Compromise Agreements, Settlement Agreements are legally binding agreements between an employer and their employee. They provide severance payments in exchange for the employee agreeing that they won’t purse a claim in the Courts or at a Tribunal.

Settlement Agreements are also used as a way of finally concluding workplace issues that don’t result in the employment contract being terminated, for example, they may be used to resolve a dispute regarding holiday pay.

Settlement Agreements Effectively Silence Employees

The circumstances that lead to the employee’s contract termination as well as the payment and terms of the arrangement remain confidential when using settlement agreements. Employers often use them to prevent employees from making remarks that are disparaging about the business. After signing a settlement agreement, the employee cannot bring a claim against the employer unless the reason for their termination has been misrepresented.

Settlement Agreements Waive Employment Rights

When employers feel that an employer may try to make a claim against them, a settlement agreement is the ideal solution to ensure that the employee forfeits their rights to take legal action. The most common situations where this occurs is when an employee has complained of unfair treatment, if the employee has been disciplined, or is facing redundancy and has tried to appeal.

If there is an ongoing issue where an employee has alleged that they have been discriminated against or raised a grievance that the employer doesn’t feel that they can uphold, confidence and trust often breaks down. In such cases, a settlement agreement is often in both parties’ best interests as they can terminate the contract on terms that are mutually agreeable.

Employers Can Shortcut Long Redundancy Procedures

When employers want to make employees redundant they have to carry out formal consultations with all effective employees. Part of the process involves consideration of alternative employment in the organisation as well as the employees’ right of appeal. As you might imagine, the procedure is time-consuming and takes up a lot of administrative resources.

It’s possible to avoid this process by offering affected employees settlement agreements. This means they’re asking employees to forfeit their rights to go through standard redundancy procedures in exchange for a larger payout that they’d have received otherwise. If it seems that redundancy is inevitable for the employees, a settlement offer may be appealing.

Employers Are Playing It Safe

Sometimes, an employer will always offer a settlement agreement when making somebody redundant as a way of playing it safe. Tribunal claims cost thousands, so offering a settlement can avoid that expenditure. Nevertheless, it’s essential for an employer to take professional legal advice when considering offer employees settlement agreements, and it’s also wise for an employee to seek legal advice with regard to whether or not to accept.