Why Would an Employer Offer an Employee a Settlement Agreement?

Settlement Agreement Between Employer and Employee

If you’re an employee and you’ve been offered a settlement agreement, you may be wondering what your employer’s up to. Why would your employer want you to sign away all your rights? Have they done something they shouldn’t have done?

Not necessarily.

I can re-assure you that there are many good reasons an employer may want you to sign one. In this blog I set out the three most common ones.

1. A settlement agreement is a waiver of all your employment rights

Let’s start with the obvious.

If your employer feels vulnerable to a claim, they’ll want to make sure that you agree to give up your right to pursue legal proceedings. This may happen where:

  • You’ve raised a grievance about unfair treatment
  • Your employer has disciplined you for some reason
  • You’re being made redundant and you’ve raised an appeal.

If you are being asked to give up any claims you may have, you should get legal advice at an early stage to find out how strong your claims are and how much you’re likely to recover if you’re successful. This will help you to determine how much you should expect in the settlement agreement.

2. Your employer can shortcut a long redundancy procedure with a settlement agreement

If your employer were to make you redundant, they would have to go through a formal consultation procedure. This includes:

  • consulting with affected employees
  • considering alternative employment within the company
  • the right to appeal

This procedure take time and is an administrative burden. In some cases, the outcome is a foregone conclusion and this kind of process seems like an unnecessary formality.

Some employers avoid having to go through the procedure by offering a settlement agreement instead. They’re effectively asking the employee to waive their right to be taken through the redundancy procedure in return for receiving a higher payment than they would otherwise receive.

This offer may be attractive to the employee if it looks likely that a redundancy dismissal is inevitable. There’s no obligation to accept it – if you feel you’re being unfairly treated, you may choose to go through the redundancy procedure instead.

At the end of the procedure, you will still have the right to claim unfair dismissal. However, you’ll probably find that the original offer of a settlement agreement is no longer open to you.

3. Your employer likes to play it safe

Some employers have a policy of offering settlement agreements whenever they make someone redundant. It doesn’t necessarily mean they’re vulnerable to a claim or that they want to avoid a redundancy procedure. They just like to play it safe.

A tribunal claim (even one that is bound to fail) can cost an employer thousands of pounds. A settlement agreement is a great way to avoid that happening.

Contact us for free advice about your settlement agreement

If you’ve received a settlement agreement and you’d like to find out more about what to do, contact us for a free consultation.

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