A Settlement Agreement is legally binding between employer and employee which can be used to settle Employment Tribunal claims (also used in civil claims).

 

The purpose of the agreement is that you compromise (waive) any employment and civil related claims, that you may have against your employer (excluding personal injury, pension and rights to whistleblow).  In return for your agreement to compromise any employment and civil related claims, your employer agrees to make a severance payment to avoid claims brought by you in a Tribunal or a Court.  However, there are specific conditions before an employer and employee can enter into these types of agreements. We advise our clients on both sides to ensure that they secure legal advice and representation when contemplating entering into a settlement agreement because they can be challenged and found to be illegal and void if not drafted and advised upon correctly as we explain below.

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The conditions for a Settlement Agreement to be a legal document are that:

• The settlement agreement is in writing

• It must relate to the particular proceedings

• The employee must have sought relevant independent advice

• The legal adviser must have relevant insurance in respect of loss arising as a result of the advice

• The agreement must identify the legal adviser

• The agreement must state that its terms comply with the relevant statutory provisions, and make reference to which provisions these are

 

The majority of claims that can be brought in Employment Tribunals are derived from statutory provisions which prohibit an employer and employee from coming to an agreement that resolves a claim and prevents the Employment Tribunal from using its powers to decide on the dispute.  Within the statutory provisions there are clauses which are "contracting-out provisions", an example of a statutory provision is the Employment Rights Act ("ERA") 1996, as well as the Equality Act 2010 ("EqA").  These provisions are there to protect employees from signing away their rights to a claim; without the settlement agreements meet the statutory requirements, any other agreement that purports to give up rights under the statutory provisions is void.  There are only two possible exceptions to the "contracting out" rules that are permissible for the parties to settle claims and avoid Employment Tribunal litigation.  The two exceptions are that:-

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• the agreement is reached with the support of ACAS during or following ACAS Early Conciliation - this is usually in the form of a COT3 settlement agreement.  Both parties agree to draft COT3 wording and ACAS finalise the document for the parties to sign.

• the agreement follows the statutory requirements for a legally binding settlement agreement - this is usually drawn up by the employer and the employee then seeks advice from an independent advisor.

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The second exception is by means of usually standard wording Settlement Agreement, and can only be recognised in law if it is certified by a relevant independent adviser who must provide an Adviser Certificate.  It is important that the actual person who advises you is the one who must sign that Adviser Certificate.   The certificate cannot be signed by a supervising solicitor if an unqualified/trainee/paralegal fee earner has advised verbally or by email; if this arises you should ensure you request a copy of the practising certificate that bestows the legal rights on the person advising you.  Where you have doubts, you should seek independent legal advice on a potential negligence claim to avoid risk of the settlement agreement being void which could mean that any sums paid as part of that agreement would potentially be repayable. We explain parties who are legally able to advise on settlement agreements under the ERA legislation.

 

Under section 203(3A) of the ERA 1996 there are broadly four categories of "relevant independent adviser":

• Qualified lawyers as defined under section 203(4)(a) of ERA 1996, as any person who is authorised under the Legal Services Act 2007 (LSA 2007) to exercise a right of audience or to conduct litigation. These activities are defined in section 12 of the LSA 2007 as "reserved legal activities". Therefore, to be a relevant independent adviser on a settlement agreement, a qualified lawyer must be authorised under the LSA 2007 to carry out reserved legal activities. Patricia White is authorised and entitled to act as "relevant independent adviser". 

• Trade union advisers. Officers, officials, employees or members of an independent trade union who have been certified by the union as competent to give advice and as authorised to do so on its behalf.

• Voluntary sector advisers. Those working at an advice centre (whether as an employee or a volunteer) who have been certified as competent to give advice and as authorised to do so on its behalf, provided the employee has not paid for the advice.

• Others. Those specified in any order made by the Secretary of State. This covers chartered legal executives employed by an SRA regulated solicitors' practice who are not authorised to conduct litigation and advocacy in their own right.  

 

Before entering into a settlement we can advise and employer on a suitable settlement and we can advise employees on the merits of their claim and the amount of money they would be likely to receive at an Employment Tribunal.  We will identify any type of claim and discrimination which the employee or employer might not be aware of.  

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There are some claims which cannot be settled by a settlement agreement which includes:-

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• Certain claims under The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) ("TUPE") (amended by The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (SI 2014/16))  including failure to inform and consult and failure to notify employee liability information

• Certain claims under the Agency Workers’ Regulations 2010 including those in relation to breaching rights to basic working and employment conditions and access to vacancy information

• Certain claims under Trade Union and Labour Relations (Consolidation) Act of 1992, (TULR(C)A), for failure to comply with the duty to consult employee representatives on a collective redundancy

 

In addition, by law, employees cannot contract out of the right to receive the following statutory entitlements and payments:

• statutory sick pay (SSP)

• statutory maternity pay (SMP)

• statutory paternity pay (SPP)

• statutory adoption pay (SAP)

• statutory shared parental pay (SSPP), and

• statutory parental bereavement pay (SPBP)

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How does a Settlement Agreement start?

 

Settlement Agreements are used where there is a dispute between employer and employee, disciplinary action or the parties mutual agreement to bring the employment contract to an end.  They can also be used in redundancy situations, however there still has to be a fair redundancy procedure and selection process before deciding on redundancies.  An employer may offer a settlement agreement to avoid a prolonged redundancy and may offer enhanced redundancy.  However, in those circumstances an employee does not have to accept this, they can still go through the redundancy procedure.  Whatever, the position it is important that independent legal advice is sought before agreeing to any terms.  

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There are two usual ways in which the employer and employee may end up with a settlement agreement before any claim starts in an Employment Tribunal:-

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1.  Section 111A Employment Rights Act 1996 permits private discussions between an employer and an employee.  There does not need to be any dispute between them for either the employee or employer to initiate a discussion.  These are known as "protected conversations". 

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Pre-termination conversations (including any settlement proposals) cannot be used as evidence in any judicial actions, according to Section 111A.  This regulation does have some exceptions, such as when anything is said or done that the Tribunal deems to be “improper.” This would include actions that may be seen as bullying or harassment. Therefore, employers must be cautious while engaging in discussions; we would advise that at all times notes of meetings are taken by a note-taker who is not participating in the meeting.  These discussions are only relevant to unfair dismissal claims.  If a settlement agreement cannot be achieved, neither party may, with certain restrictions, subsequently refer to or rely on any negotiations that had occurred on a protected basis.

Therefore, the employee is prohibited from bringing up those talks to show that the outcome of the procedure was predetermined when such a discussion happens prior to a future disciplinary or dismissal process.

 

2.  “Without Prejudice” conversations are off the record conversations intended to resolve a dispute.   Communications between employer and employee, such as letters or conversations, may be headed and referred to as ‘without prejudice’. The intention is to indicate that the item cannot be disclosed or admitted as part of any Tribunal proceedings that may follow.  The without prejudice rule can potentially apply in all types of litigation while the rule (Section 111A above) regarding pre-termination negotiations can only apply to ordinary unfair dismissal claims.

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We have substantial experience in all types of employment claims, and can provide guidance on compensation levels and help employers determine what would be reasonable in the circumstances.  We can advise employers and employees to ensure any settlement takes account of minimum legal entitlements.

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Our fees for advising an employee on their options and the settlement agreement under the requirements of the ERA are usually paid for by the employers who include this provision within the settlement agreement.  We offer bespoke fee arrangements for employers requiring assistance on drafting and advising on the correct course of action that can be taken.