Settlement Agreement

The parties involved in an employment-related dispute will very often be keen to avoid the cost, uncertainty and time involved in an employment tribunal claim. The parties may attempt to negotiate a settlement as soon as the dispute has arisen, or at any time throughout the tribunal process, right up to the date of the full hearing.

Employment legislation provides that clauses in agreements which have the effect of excluding an individual’s right to pursue a statutory employment claim in the tribunal are void. This is to ensure that employees are not pressurised into signing away their rights without first having obtained independent legal advice.

However, there are two main exceptions to this rule:

where an Acas conciliation officer has taken action under s.18 Employment Tribunals Act 1996, involving a COT3 form of settlement; or
where there has been a formal settlement agreement complying with the conditions in s.203(3) ERA (or the relevant provision of the legislation giving rise to the claim being settled, e.g. s.147(3) EA).

Automatic unfair dismissal

Note that s.111A ERA introduced a new provision that pre-termination negotiations are inadmissible in evidence in an ordinary unfair dismissal case (but will still be admissible in automatically unfair dismissal cases) unless there has been ‘improper behaviour’ by a party. This rule operates alongside the existing common law rules on ‘without prejudice’ discussions. This makes it easier to offer to terminate an employee’s employment by way of a settlement agreement. However, an employer needs to be aware that such negotiations will still be admissible in other claims, for example wrongful dismissal or discrimination claims.

employment settlement agreement

Section 203(3) ERA states the following:

“….the conditions regulating settlement agreements under this Act are that:

(a) the agreement must be in writing;

(b) the agreement must relate to the particular proceedings;

(c) the employee or worker must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and, in particular, its effect on his ability to pursue his rights before an employment tribunal;

(d) there must be in force, when the adviser gives the advice, a contract of insurance, or an indemnity provided for members of a profession or professional body covering the risk of a claim by the employee or worker in respect of loss arising in consequence of the advice;

(e) the agreement must identify the adviser; and

(f) the agreement must state that the conditions regulating settlement agreements under this Act are satisfied.”

Advising on settlement agreements in practice is extremely common and is therefore a very important aspect of an employment solicitor’s job. It is important to note that every statute and statutory instrument giving rise to employment claims includes a provision which is equivalent to s.203(3) ERA, e.g. s.147(3) EA. A ‘relevant independent adviser’ is defined as a qualified lawyer, or an advice centre adviser or trade union official who has been certified as competent to give such advice.

For a settlement agreement to effectively block a claim, the specific claim must be referred to, e.g. unfair dismissal or discrimination, or a reference to the relevant statute or statutory instrument. A generic catch-all waiver referring to ‘all statutory rights’ will not be effective. However, in practice, an employer is likely to list the specific claim(s), alongside a catch-all waiver. It is important to note that any claims for either future personal injury or accrued pension rights cannot be waived, so this should be made clear in the agreement.

It is common for an agreed reference, and any internal/external PR statement(s), to be attached in a schedule to the settlement agreement.

Settlement Agreement