Settlement Agreements & Exit Strategies

A settlement agreement is a legal document which sets out the detail of an agreement between an employee and employer. Most often, this covers a termination package where an employer buys a departing employee’s legal rights in return for an agreed sum of money. Ensuring that you receive the sum you deserve is critical when dealing with a settlement agreement.

In any business the time will come when an employee is no longer required, either they have not developed with the growth of the business or the employee no longer has the skills and experience the business needs or trust and confidence has broken down over time and the employment relationship is no longer tenable.

For many reasons, you, the employer, may not want to take the performance management route or start a full-blown redundancy process – there may be concerns that the employee is unlikely to improve sufficiently in the required timescales or there may be PR sensitivities if it becomes known in your sector that you are making redundancies. In these situations, and many others, it is often preferable to short-circuit the normal procedure for dismissal by offering the employee compensation to leave their employment.

Whatever the reason, we will advise you about your options, the risks involved and the most commercial solution available to you. We will consult with you about an appropriate exit strategy, how to handle the discussions with the employee and how to achieve the desired outcome. This is likely to involve one of two processes which can result in a Settlement Agreement – one is known as ‘without prejudice’ discussions and the other is ‘pre-termination negotiations’ under s111A of the Employment Rights Act 1996. The advantage of these processes is that discussions about an exit strategy and paying compensation to an employee will generally not be admissible in future court or tribunal proceedings (with a few exceptions) and, therefore, the business is protected against any allegations that it tried to dismiss the employee without following due process.

When advising you on these issues, we will always take into account your attitude to risk, which has to be balanced against the need to be commercial and ensure your business is protected. We rely on our many years of experience, advising businesses of all sizes, and in a wide range of sectors, to inform the advice we give to you during what can be one of the most difficult situations you face when dealing with your employees.

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