A settlement agreement (previously known as a compromise agreement) is a contract entered into between you and your employee, usually at the end of an employee’s employment, which means you will make a payment to your employee, and sometimes other benefits, in return for them surrendering their legal rights to bring any employment claims against your business or its personnel. These documents have been used increasingly over the last decade as a commercially viable option to reduce ongoing liability if an employee leaves your business and to protect your business by ensuring that post termination restrictions are re-stated and continue to bind the outgoing employee.

When should I seek advice about a settlement agreement?

We recommend that you seek initial advice at an early stage, and ideally even before there is an issue which may require a settlement agreement, so that you are informed and able to deal promptly and effectively as soon as an employee raises a grievance that you are concerned about, resigns or threatens to resign or advises that they will be bringing any Employment Tribunal Claims or approaches you with a ‘Without Prejudice’ letter.

If you are considering making redundancies, or starting a performance management plan, or disciplinary procedure, contacting a specialist employment solicitor before starting that process to look at the option of using settlement agreements is also advisable. Settlement agreements may, depending on the circumstances allow for a grievance, redundancy, or disciplinary procedure to be dispensed with and so could bring efficiency gains and maintain goodwill with outgoing employees, if managed well.

We can assist with settlement agreements at any stage, but the earlier we are involved the better we can advise you on the best negotiation strategy in your specific circumstances. If you have a ‘protected conversation’ with an employee and make them an offer to settle, any negotiation after that time to reduce the offer will be significantly more difficult than if no specific offer is made before taking legal advice.

How can we help with your settlement agreement?

There are a number of ways we can help you to achieve a prompt and commercially advantageous settlement agreement:

• Before you consider whether to offer a settlement agreement you are likely to want to know if there is really a risk to the business of not offering one. It may be that there are no outstanding claims to be settled and no concern of ongoing liability to be resolved. If you would like assistance with assessing the likelihood of success of an employee’s employment claims and the likely value of any such successful claims, we can look at this with you first.
• If you deem that offering a settlement agreement is advantageous, we can assist with drafting the settlement agreement. We would typically take instructions from you relating to the circumstances of the employee’s exit and likely potential claims in order to ensure that those terms are effectively settled by the wording of the agreement. We would then take instructions from you on the financial offer of settlement you would like to put forward or have already agreed with the employee.
• We can draft without prejudice letters for you to send to your employee setting out the offer terms. It is wise to get a solicitor to do this, particularly if you have not been through this process before, and to keep offers in writing, where possible, in order that you do not create a constructive unfair dismissal claim because of the way you have offered an agreement.
• We can help negotiate the financial and non-financial settlement package. Using many years of experience across various industries, for all levels of employee, we can employ well-honed, tried and tested strategies to limit the financial and non-financial benefits your business will be required to offer under the settlement agreement.

How long do settlement agreements take to complete?

If the terms of a settlement agreement are agreed by both parties, they can be completed in a matter of days and sometime even on the same day. If both parties are negotiating the terms of a settlement agreement, this can take a little longer, but will generally still only be a matter of weeks. Typically, if a settlement agreement is not completed within a month and both parties do not appear to be close to settling the alternative process, or employment Claim will continue and settlement revisited at a later time.

Can we help with COT3 Agreements?

Absolutely. If your employee has started the ACAS Early Conciliation Process or otherwise contacted ACAS to try to settle their perceived employment Claims, we can offer the following services:

• Assessment of the employee’s Claims and their likelihood of success.
• Discussion with you about appropriate level of financial/non-financial settlement and negotiation on your behalf.
• Draft or review the COT3 Agreement wording to ensure it best protects your business from future claims and by restating any post termination clauses in their contracts.

If you would like to see if a settlement agreement is a worthwhile option in your specific circumstances, if you would like help with drafting an agreement, have offered a settlement agreement and would like advice on negotiating the terms, we would like to talk to you and see how we can help.

Go back to: Employment Advice for Employers

How to Get in Contact

We can assist wherever you are based. We can arrange an online or in person meeting where suitable.

To speak to our specialist lawyers, please call +44 203 841 7470 or email samantha.jolliffe@patronlaw.co.uk for more information.

Key Contact:
Samantha Jolliffe
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