Employers: Ask an Expert

Q: Do I need to give an employee a reason as to why I am offering them a Settlement Agreement?

Fiona Martin, Director and Head of Employment Department of Martin Searle Solicitors answers…

Settlement Agreements can be used to resolve a range of disputes. This includes an ongoing dispute in the workplace where the employment relationship is not going to end. In this situation, it would be vital that you are clear that the Settlement Agreement relates to the issue you are seeking to resolve, so that any ongoing grievance or complaint is withdrawn.

It is, however, more common for a Settlement Agreement to be used in order to terminate the employment relationship. Although the Settlement Agreement can merely state that there is a termination due to “mutual agreement” or by “mutual consent”, this does not mean that you should not provide reasons as to why you are offering a Settlement Agreement. It is usual for Settlement Agreements to be reached through the process of discussion and negotiation. They should be used as a last resort where you and your employee feel that your employment relationship is no longer working and a clean break is the best way forward.

The Acas Code is helpful in that it gives examples of how Settlement Agreements might be used by an employer. Acas makes it clear that a Settlement Agreement can be offered at any stage in an employment relationship and that there is no legal requirement to go through any sort of disciplinary or grievance process. However,  they also make it clear that offering a Settlement Agreement should not be a substitute for following  fair and transparent procedures for handling performance management and disciplinary and grievance procedures.

Failure to do so may mean that communications break down and misunderstandings may occur. Your employee may even accuse you of treating them less favourably than other employees. If they believe this is because of a “protected characteristic” such as their sex, race, sexual orientation etc. then all “without prejudice” or “off the record” conversations including the Settlement Agreement itself may be disclosable to an Employment Tribunal   as evidence of unfair treatment.

As a Settlement Agreement has to be signed off by the employee’s independent legal advisor it is in your interests to be clear about the reasons why you are offering this Agreement and where possible to have followed the correct process. For example, if poor performance is the issue, a capability process should have identified the problems, including removing any management issues such as lack of resources or training. If this has not occurred their legal advisor may encourage your employee to raise a formal grievance against you.  They are also likely to ask you for a much higher sum of compensation on behalf of their client in exchange for this agreement being entered into.

Most importantly, if you offer a Settlement Agreement “out of the blue” you risk breaking the implied, mutual relationship of trust and confidence, which is essential to the employer/employee relationship. This might mean that if the Settlement Agreement is not accepted you will face a formal grievance process and possibly a constructive unfair dismissal claim.

Answer given by Fiona Martin of Martin Searle Solicitors on 12 February 2014.


IMPORTANT: The contents of this page are for guidance only and do not constitute legal advice. You should consult a solicitor without delay if you require legal advice on a particular employment matter.