When you’re running a business, you need to ensure that you follow the relevant employment laws. If a dispute arises between your business and an employee, you should adhere to the correct procedures for best practise and fairness.
To resolve a dispute or end an employee’s contract, there are several options, including reaching a settlement agreement. To support you through this process, you’ll need to gain the advice of settlement agreement solicitors as both parties need to fully understand the agreement set out.
Reaching a settlement agreement with an employee can benefit the employer in many ways. As well as providing a smooth effective dispute resolution, they can help to improve employee retention rates.
Before we discuss the benefits of a settlement agreement let’s consider the basics and when it might be appropriate…
What is a Settlement Agreement?
A settlement agreement refers to a process that is both used to terminate a working contract between an employer and an employee, or resolve a dispute and continue the working contract.
With the help of a settlement agreement, employers can save time, money, and potentially protect their reputation.
There are many instances where a settlement agreement might be used, for example
if an employee is underperforming, the employer might use an agreement to offer a financial settlement and end their working contract.
When a settlement agreement is used to solve a dispute, these may also involve offering financial compensation to the employee. These processes can be used to settle a claim that an employee has raised against the employer. A settlement agreement can also ensure that the staff member does not pursue future claims in the future.
Settlement Agreement Conditions
According to the Employment Rights Act 1996, certain conditions need to be met to create a legally binding agreement:
- A settlement agreement must be put in writing
- The employee should have first spoken to an independent adviser (to ensure that they understand the terms)
- The employee must understand how the settlement may affect their rights to pursue the matter any further
- The third party who advises the employee must have professional indemnity insurance
- A settlement agreement must confirm that the correct statutory conditions have been met
How a Settlement Agreement Can Improve Employee Retention Rates
1 . Resolving Disputes
Settlement agreements can improve employee retention rates as these agreements can be effective tools to solve disputes. When there is the potential to solve a dispute, the company may be able to improve its reputation in the eyes of the employee and encourage them to stay.
There are many different types of workplace problems and disputes that may arise, including:
- Worker status disputes
- Contract disputes
- Unfair dismissal
- Salary or pay disputes
- Maternity pay disputes
- Discrimination in the workplace
2 . Maintaining the Company’s Reputation
Workplace disputes can have a negative effect on a company’s reputation. In many cases, it’s in the company’s best interests to find a positive resolution. If a dispute can be resolved effectively, the company has a chance to encourage the employee to remain in their role, and repair the working relationship.
If an employee has an issue with their workplace conditions, how they’ve been tried, or their pay, these problems can reflect poorly on the company image. By offering a settlement agreement, and attempting to resolve the situation, the employer has the chance to maintain their reputation, and move forward.
In many situations, settlement agreements can provide a mutually beneficial arrangement for both the employer and the employee.
3 . Negotiate a Misunderstanding
Many workplace disputes are serious, involving misconduct on either side, yet not all disputes are complex. If your company is dealing with a less serious issues of workplace conflict, there is certainly the potential to resolve the problem without an employment tribunal.
If your company is experiencing a dispute, and you’d like to negotiate, it’s useful to seek the advice of a solicitor, before making any key decisions.
4 . Financial Gain for the Employee
When a business uses a settlement agreement to resolve a dispute, the employee usually receives a financial pay out. Receiving a financial settlement to end a dispute is an appealing option for many employees.
By agreeing on a financial settlement, the business can show the employee that they have taken the dispute seriously and are keen to make amends and move forward if possible.
What Are the Other Benefits of a Settlement Agreement?
1 . Quicker Way to Resolve Disputes
If disputes cannot be resolved using a settlement agreement, the case will be escalated to an employment tribunal. Using this route can be costly and time-consuming and so, in many cases, it can be useful for both parties to settle matters themselves.
Regardless, certain disputes may not be suitable for the settlement agreement process. It’s important that both employees and employers seek legal advice before proceeding.
2 . Alternative Approach to Redundancy
Under certain circumstances, settlement agreements can be used as an alternative solution to redundancy. With the help of a settlement agreement, both employees and employers can avoid a drawn-out redundancy procedure.
It is important to note that, these settlements are voluntary, and the employee does not have to take the offer made.
How Else Can Businesses Protect their Reputation in the Event of a Dispute?
Agreeing on a financial settlement can help to fix the business relationship, and potentially encourage the employee to stay at the company. When disputes arise, there are several other ways that a business can improve its position and protect its reputation.
Agreeing on a settlement often asks the employee to agree to certain terms. The following terms could be used to protect a business:
- Some employers include obligations, asking the employee to refrain from speaking in a derogatory way about the business (for example on social media)
- Employers should include a waiver clause. This can help to protect a business if there is a gap between the time that that employee signs, and the date that their employment ends.
Settlement Agreements and Employee Retention Rates
Using a settlement to resolve a dispute can serve as a financial incentive for employees. The incentive may improve the image of the business and persuade the employee to remain.
Many disputes can reflect badly on a company’s reputation, and so an appropriate dispute resolution process can also protect the business reputation in the wider community.
When a business is negotiating a settlement, the employer may wish to include certain terms to further protect their reputation. It is important that the employee understands these terms and judges them to be fair before they sign any settlement agreement.