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Negotiating a Settlement Agreement in 2021

Relations between an employer and an employee can sometimes be fragile and often it’s really better to cut to the chase and talk about an amicable way forward. But even this can be tricky as once these kinds of discussions are on their way it can be difficult to maintain trust and loyalty.

From my experience here are some tips on how to keep things positive.

  • Procedures- You don’t want to be or sound over legalistic as this can be intimidating but it can be helpful to mention the ACAS Code & section 111A of the Employment Rights Act 1996 which allows people to have ‘off the record’ discussion. Ideally this should be confirmed in a friendly letter before any detailed meeting.
  • Confidentiality- This is key and in everyone’s interests. Employers are very cautious about making offers if they feel that this will lead to copycat cases. If you are an employee make it very clear that you understand this as you might even find your employer is that bit more generous if it’s only you! Employers should seek written assurances of confidentiality or at the very least make it the first item on the agenda.
  • ACAS Guidance- Download a copy of the ACAS booklet 'Settlement Agreements: a Guide' and make sure everyone has a copy. Just doing this can convey the sense that this is all being done correctly. The Guide explains the standards to be applied such and what amounts to ‘improper behaviour.’ Where a party makes threats or in the case of an employer uses bullying tactics eg saying things along the lines of- sign this or there’ll be a performance procedure and your chances are not good then the confidentiality provisions no longer apply. Picking on someone (victimisation) for raising legal issues or making threats to harm reputations are other examples- short point is both parties should be polite and fair.
  • Without prejudice- Discussions that take place in order to reach a settlement agreement in relation to an existing employment dispute can be, and often are, undertaken on a ‘without prejudice’ basis. This means that any statements made during a ‘without prejudice’ meeting or in related communications cannot be used in a court or tribunal as evidence. Make this clear in correspondence and at the beginning of the meeting- people clam up if they feel they will be quoted by lawyers at a Tribunal! However, this rule only applies where there is an existing dispute so if that isn’t the case make sure you formally rely on Section 111A by making it clear it’s a Protected Conversation.
  • Settlement agreements- If you reach a deal Settlement Agreements are the only legal way of compromising potentially difficult employment situations. They are essentially a contract, a ‘one stop shop’ to tidy up all the issues for both parties and can be tailored so if something is really important (the employer may want to protect specific client contacts, or the employee might be looking for a particular reference) you should be able to agree it.
  • Starting the conversation- a great way to start the conversation is to state your objective and intentions. Try to keep this neutral so My dream outcome would be a dignified exit where we remain friends and we all benefit going forward is a good way to establish dialogue because you can’t really argue with it…
  • Fixing things- large amounts of compensation are only necessary when something’s already been (or may be) broken. Far better to find the thing itself and make sure it’s not damaged. Reputations, career progress, health etc. and look at non-monetary solutions. The reason for a departure is normally key here. An employee who is made redundant or who leaves under restructuring will fare much better than a resignation (without any reason or explanation) or with reference to conduct or capability and one of the upsides of negotiated exits right now (during Lockdown) is that there is so much change and restructuring going on that to ‘lose’ a negative relationship is not likely to lead the usual scrutiny. But remember an employer cannot mislead future employers by providing untruthful references so probably best to take some advice.  
  • Timing- it can be helpful to mention a Protected Conversation before the weekend to give the other party time to decompress. This tends to be less disruptive as well. Employees often like to talk to their partner, but it is important to remind them that their partner is also bound by confidentiality. Avoid giving the other party an ultimatum. People don’t trust deals which are being pushed at them down a barrel. They need time to think and digest on all the benefits. The ACAS Code says a reasonable period of time should be offered to reflect and suggests 10 days. This is also emotionally intelligent because it shows that the employer has no hidden agenda.
  • The benefits- there are many benefits to a Settlement Agreement, but the main ones are:

-             Avoiding legal costs (employer pays for advice on the agreement- you can say goodbye to 1/3 of any deal if you use a ‘no win no fee lawyer’

-             Reputations/publicity- who wants a fulsome tribunal judgement on the internet with details of a dispute?

-             Tax efficiency- a genuine gift can be paid tax free up to £30k and so can pension contributions

-             Stress/reputations- these really are the most important benefits- people have no idea how much strain a tribunal case puts on those involved. Think of what can be achieved without all of that resentment and pouring of legal documents. Settlement Agreements should have clauses protecting both parties’ reputations. Tribunal decisions are now available online so that’s worth bearing in mind.

  • Meetings- it’s not a legal requirement but employers should allow employees to be accompanied at the meeting by a work colleague, trade union official or trade union representative. It’s worth remembering that an employee facing loss of their job and being nudged out of the team will no doubt feel very stressed. Don’t take a verbatim note but make an agreed summary at the end. A detailed note will make the employee nervous but you will need some kind of record, ideally to start drafting the Settlement Agreement.
  • Compensation/Redundancy – If you go down the redundancy route there is a fixed method of calculating the amount as follows:

½ week’s pay for each year of employment up to age 22

1 week’s pay for each year of employment between the ages of 22 and 40

1.5 week’s pay for each year of employment aged 41 or over

The following caps apply:

A week’s pay is capped at £538 (currently -it changes every April); and

Length of service is capped at 20 years.

Example: Statutory redundancy formula on 5 years’ service under age 41: £538 x 1 x 5 years’ service = £2,740

  • Reductions/- a lot of redundancies are taking quickly these days due to the pressures of Lockdown. An unfair procedure would normally result in a legal finding of unfair dismissal but this does not mean you would get a large award if it is likely you would have been dismissed in any event (had a longer procedure taken place). The tribunal would take an informed view on what would have happened and with large scale redundancies at present it could be a difficult case to argue.

A tribunal can reduce your compensatory award if they decide you’ve contributed in some way to your dismissal. This is known as contributory fault.

The tribunal will only reduce your compensatory award if they think you’ve done something which you’re to blame. For example, broken rules for no good reason. A tribunal won’t reduce your award for something you had no control over. For example, dismissed for ill-heath.

A tribunal will expect you to be able to show as evidence that you’ve made reasonable efforts to find another job as quickly as possible. This is called mitigating your loss. If the tribunal think you have not done enough to mitigate your loss, then they can reduce the award.

Get Settlement Agreement Help Today

To begin the process, all we need is the agreement, your manager’s contact details and a contact number for you. Contact us today for a fixed-fee, same day Settlement Agreement service.

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