Employment law specialist urges employers to ensure settlement agreements are valid

Latham Parry
January 28, 2021

With the news that there was a record spike in redundancies, a Cheshire employment law solicitor is urging businesses to seek advice if considering the use of settlement agreements as a means of mitigating the risk of tribunal claims.

The Office for National Statistics (ONS) revealed that in the three months to September 2020, redundancies reached a record high of 314,000 as COVID-19 impacted the jobs market. In redundancy situations, many employers offer enhanced redundancy terms which are conditional upon the employee entering into a settlement agreement.

And Latham Parry, partner and head of employment law at Warrington-based Watsons Solicitors, is concerned that some employers may not be handling this type of situation properly.

A settlement agreement is a contract between an employer and an employee and is one of a limited number of options used to resolve or ‘settle’ claims or potential claims.

It typically involves the termination of an employee’s contract, often where there is a redundancy situation, and it prevents the worker from bringing or pursuing claims in an employment tribunal.

However, this type of written agreement must satisfy a number of statutory conditions in order for it to be valid and provide the employer with the protection it is seeking.

Latham said: “We’ve noticed an increase in settlement agreement inquiries over the past few weeks as the economy reacts to the ongoing pandemic by placing jobs at risk.

"It's vital for organisations to approach the use of these agreements carefully. Any discussions with employees should be conducted on a ‘without prejudice’ basis, or as a ‘protected conversation’; there should be no ‘improper conduct’ on the part of the employer. It should follow the steps and measures in place to help avoid litigation and offer certainty and protection as tribunals can lead to stress and added costs for employers.

“In order for the agreement to be effective and legally binding, it should be in writing and the employee must also receive advice from an independent adviser. In addition, the agreement must refer to ‘particular proceedings’ (or particular complaints) – many settlement agreements I see are not tailored to the employee’s particular circumstances.”

Viewed as a ‘clean break’ in the employment relationship, the employee receives benefits under the agreement (such as compensation or the provision of an agreed reference) and the employer obtains peace of mind from the protection against claims being brought against them.

Latham added: "Settlement agreements can also contain various other terms which provide protection to the employer, such as obligations of confidentiality and tax indemnities.

"Employers should also be aware that they will often contribute towards the employee’s legal fees incurred when taking advice on a settlement agreement, as it is a mandatory requirement for them to take independent legal advice on the terms and effect of the agreement.

“It’s important that both parties take proper advice and we encourage anyone who needs to take this action to speak to an employment solicitor with expertise in settlement agreements.”

Watsons Solicitors, which has been established for more than 60 years, specialises in family law, employment law, wills and probate, personal injury, and conveyancing.

The team of experienced solicitors hold various accreditations and memberships of professional bodies relevant to their expertise, while the firm’s partners oversee all areas of work.

For more information, visit www.watsonssolicitors.com

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