July 2, 2020

Reducing staff numbers: the advantages to employers of using Settlement Agreements

Employment Law specialist David Dixey discusses the merits of settlement agreements for employers.

During the Covid-19 pandemic, some employers may have to consider, or currently are considering, making redundancies. Where this is a possibility, it is prudent to take early advice from an employment lawyer on the procedures to follow so as to minimise the risk of future disputes or claims resulting from a badly handled redundancy process.

Employment law specialists would advise that before starting a formal redundancy consultation, employers may first consider the advantages of conducting “pre-termination negotiations” with the intention of reaching early agreement on the terms of an employee’s departure. If properly undertaken (there are rules to be followed) this procedure may result in agreement, avoiding the need for a full-blown redundancy consultation process.

Pre-termination negotiations are intended to be conducted on a “without prejudice” basis, meaning an employee cannot usually refer to them in any potential future Tribunal claim. Employees who accept an offer under these terms are asked to sign a Settlement Agreement, which formally acknowledges termination of employment and that the employee is waiving the right to bring employment related claims, providing protection for the employer.

Advantages of employment settlement agreements for Employers

Certainty and protection

A properly drafted Settlement Agreement which fully complies with the relevant legislation will ensure that all potential employment related claims (unfair dismissal, wrongful dismissal, discrimination etc.) are irretrievably waived and deemed to be settled in return for the compensation paid.

Control and time

Managing contract terminations via this process can save time and allow employers to feel more in control of the process. Employees who agree to depart with a Settlement Agreement will not subsequently need to be included in time consuming consultations which can become a distraction to the running of the business, at a particularly difficult time.

A Settlement Agreement may include post termination restrictive covenants, intended to limit (for a period of time) the employee’s ability to work for a competitor; this may be particularly important for your business as you manage an employee’s departure whilst maintaining business/client relations.

Resolving existing disputes

A Settlement Agreement can also be used to settle other disputes raised during disciplinary or grievance procedures, again reducing the risk of these escalating or ending up in Court. Employees often find that accepting a Settlement Agreement can also be advantageous; tax rules governing compensation on termination can provide for payment without deduction.

If you or your business requires advice on conducting redundancy consultations, pre-termination negotiations or Settlement Agreements, contact David Dixey, Employment Law specialist at Holmes & Hills Solicitors.

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