Settlement agreements replaced compromise agreements seven years ago.
They were renamed to make them less “confrontational”, but the aim remains the same: to get the employee to agree to waive their right to sue you for a perceived (or actual) wrong, in return for an amount of money.
Why wouldn’t you start with a settlement agreement?
The reason why we don’t start with a settlement agreement in most situations is that, if a client has diligently followed the right process, they can end up handing over a load of money that they didn’t need to.
If an employee is not already in a process, redundancy or long term sickness management, then approaching them with a settlement agreement gets very expensive, and confrontational, very quickly.
That’s because they are comparing having their job to not having their job but having some extra money.
However, when you introduce the notion of a settlement agreement during a formal HR process, then it becomes clear to the employee that their options are:
Losing my job
Losing my job with some extra money
In this scenario, people are much more open to the negotiation, especially if they are aware that theirs may not be a valid claim, because their employer has followed the correct process.
Want to know how much you should pay?
Visit our Settlement Agreement Calculator to find our recommended payout
The best times to offer a settlement agreement are:
If you want to make just one long-serving employee redundant, without unsettling the rest of the department by putting them at risk of redundancy;
If you have someone on furlough that you don’t want to come back;
If you are going through the formal redundancy or disciplinary process and the employee is raising grievance after grievance.
The worst time to offer a settlement agreement is if you have no money to pay more than the notice period.
Settlement agreements can be very quick and effective, but the amounts involved are not pocket change, and you’ll generally have to pay them more than their notice period (sometimes much more) as you’re actually paying them for giving up their right to sue the business.
So, to work out how much you should be paying, as a minimum, you need to pay them their notice period PLUS what they would have got if they had been made redundant PLUS a sum for giving up their right to sue you.
We can draw up the settlement agreement for you, negotiate with the employee’s solicitor and help you reach a mutual agreement, which means you avoid any danger of a tribunal claim against you.
Contact us if you would like to discuss using this very effective tool in your “new normal” business strategy.