Settlement agreements are a very useful tool which can be described as a binding agreement between the employer and employee through which both parties agree to end a dispute between them. Generally, this will involve the employer paying the employee a sum of money and in return the employee agrees that they will not proceed with or take any claim against that employer. If the employee is still employed then more often than not this will also result in termination of employment. So why are settlement agreements ‘useful tool’?
Simply put, settlement agreements are often the smoothest and even most cost-effective way to bring a dispute to an end. There are a number of important benefits that settlement agreements have for employers.
Useful Scenarios
Circumstances in which settlement agreements are commonly used include when a company needs to restructure its business, reduce the number of employees, or where an employer wishes to dismiss an employee in a way that avoids time consuming performance management procedures and/or disciplinary procedures. An agreement can also be used at the end of a redundancy or disciplinary process or where summary dismissal cannot be legally justified. In such circumstances a settlement agreement can be used to negotiate a smooth departure from the company rather than requiring the company to go through arduous and lengthy tribunal proceedings.
Time Saving
One of the main benefits relates to the time that they can save the company.
- Performance Management: Settlement agreements are a much quicker method of terminating employment than the use of performance management, retraining and disciplinary procedures which can often be acrimonious and time consuming.
- Tribunal Claims: Settlement agreements can also avoid drawn out tribunal proceedings. In Dublin, there is currently an 87 week waiting period for hearing dates in the EAT. This means that proceedings are not resolved for a significant period of time by the EAT and this can also result in extensive legal fees building up. This adds to the uncertainty that is inherent in tribunal proceedings and delays resolution of the matter and all of this can also be coupled with the amount of man hours required to prepare your tribunal submissions.
Financial Control
Another important benefit is that a degree of financial control is retained by the employer whereas litigation involves uncertainty as any potential award is out of the employer’s hands. Settlement agreements enable employers to decide on the amount they are prepared to pay to an employee and the sum can also be paid in instalments which can be of great benefit in allowing a company to structure payments in line with the needs of the business. The instalment method can also ensure that the employee continues to abide by the terms of the agreement, including confidentiality clauses, as otherwise they may end up forfeiting their right to balance of instalments.
Confidentiality
One of the main benefits is that they often contain specific clauses on confidentiality. On the one hand an employer is going to want to protect their business interests and trade secrets. On the other hand the employee is going to want to keep the nature of their exit confidential. As such, both parties can agree that the employee will keep the agreement confidential and not disclose confidential information. In return, the employer can agree to provide the employee with a really good reference which cites some mutually agreeable reason for the termination of the employment relationship. This agreement can therefore avoid the negative publicity for both sides that would no doubt arise in an EAT unfair dismissal claim which is a public forum.
Conclusion
In short, settlement agreements will save time as the employer can agree a termination date without having to go through long-drawn out procedures while at the same time sitting safe in the knowledge that no claim will arise against them. The employee will receive an instant financial package safe in the knowledge that their employment record has not been tarnished by an acrimonious dismissal or tribunal claim.
Importantly, all employers who wish to consider settlement agreements are strongly encouraged seek advice from the experienced Peninsula Employment Law Consultants who are ready and available to take your call 24 hours a day, 365 days a year, on 01 855 50 50. A failure to implement these agreements properly can result in them being deemed void and the employee could take a claim anyway. However, once properly entered into, the benefits of settlement agreement are there for all to see.
