Employers urged to use settlement agreements | LabourBlawg

Employers urged to use settlement agreements

by Employment Blawg on February 13, 2013

Guest post regarding recent employment law updates. Contact Miller Samuel’s employment law team of solicitors for more information on how this news applies in practice.

Workplace disputes are an ever present challenge for employers, and if they are not resolved effectively, could lead to a costly employment tribunal claim.

Employers are now being encouraged by Government to resolve more of these disputes through the use of settlement agreements, in an attempt to reduce the number of cases that end up going to a tribunal.

Settlement agreements

Settlement agreements (formerly known as compromise agreements) are mutually agreed, legally binding documents which can be used to end an employment relationship.

Under the terms of a typical settlement agreement, the employee receives a severance payment, and perhaps a reference, in return for waiving their right to take a case to an employment tribunal on any grounds covered by the agreement.

Why use settlement agreements?

The Government believes that the use of settlement agreements brings a number of advantages:

  • They enable a workplace dispute to be resolved without ending up in an employment tribunal.
  • Employers gain peace of mind in knowing that they will not end up in a tribunal over any of the grounds covered by the agreement.
  • The employee benefits by getting a severance payment and avoids having a dismissal in their employment history.

Government proposals

The Government consulted over the use of settlement agreements in September 2012, as part of its wider ‘Ending the Employment Relationship’ consultation.

It has now published its response to the consultation, including a number of proposals with regard to settlement agreements:

  • It will make template letters available to encourage the use of the new settlement agreements, alongside a statutory code of practice which will include an explanation of improper behaviour.
  • In response to concerns raised during the consultation, the Government will no longer set a guideline tariff for settlement agreements. Respondents highlighted that this could set unrealistic expectations for employees, and could be viewed by employers as a maximum from which they would try to negotiate down. Instead, the Government will publish guidance outlining the issues that should be considered when deciding and negotiating the level of financial settlement.

Cap on unfair dismissal compensation

As well as promoting the use of settlement agreements, the Government has also announced its intention to introduce a 12 month pay cap on the compensatory award for unfair dismissal. It does not, however, plan to amend the overall limit of the cap, which currently stands at £72,300.

“Employment Tribunals are costly for everyone, in terms of money but also time and stress,” commented Employment Relations Minister Jo Swinson. “We need to tackle unrealistic expectations about the levels of compensation awards, especially when only one in 350 people who make a claim for unfair dismissal receive an award of more than their own salary, and the average award is less than £5,000.”

“Tribunals should be the last resort not the first port of call,” she concluded.

Contains public sector information licensed under the Open Government Licence v1.0.


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