How to use Settlement Agreements to Avoid an Employment Tribunal Claim

Signing a Settlement AgreementIf you are thinking about dismissing an employee, you could be vulnerable to an Employment Tribunal claim. Even if the claim is unlikely to succeed, you will need to defend it and this can be costly, demoralising and time-consuming.

A settlement agreement is a great way to protect your business against such claims.

In what circumstances will a settlement agreement be appropriate?

An employee can claim against your business under their contract of employment and under the general law.

One method of reaching an agreement to settle a claim or potential claim is to enter into a settlement agreement with the employee. A settlement agreement is a binding agreement to either:

  • ¬†settle a claim; or
  • refrain from starting a claim.

In most cases, you would expect to make a payment to an employee in return for them agreeing not to bring a claim.

What are the legal requirements for a valid settlement agreement?

For a settlement agreement to be valid, there a number of conditions that must be met. The most significant conditions are:

  • The agreement must be in writing and contain certain minimum information;
  • It must relate to a particular complaint or claim made by the employee; and
  • The employee must receive independent legal advice, eg from a solicitor.

Possible content of a settlement agreement

Other than the legal requirements above, the content of a settlement agreement is largely at the discretion of your business.

Usually, agreements contain confidentiality provisions. For example, the employee agrees:

  • Not to use or disclose any confidential information;
  • To keep the agreement itself confidential; and
  • To refrain from making any derogatory comments about the employer (including on social media sites, such as Facebook and Twitter etc).

Which types of claim can be settled by a settlement agreement?

A large number of statutory claims can be settled by a settlement agreement. The most common ones are:

  • Unfair dismissal;
  • Discrimination;
  • Breach of Contract.

Some claims cannot be settled by entering into a settlement agreement. These include some types of:

  • Personal injury claims.
  • Pension claims.

More information

If you would like to discuss using a settlement agreement to help guard you against an Employment Tribunal claim, please contact us.

Legal Advice for Employers