Settlement Agreements: and the re-balance of bargaining power  

Too often we see employers cut through the legal niceties of performance management or disciplinary procedures by offering employees a Settlement Agreement as a way of bringing the employment relationship to an end. 

Those employers will have been well-advised of the risks, the exposure to potential employment claims and reputational damage. That risk they perhaps see being offset against the time and costs of affording the poor performer a reasonable opportunity to improve; and/or carrying out proper investigation and disciplinaries. 
 
In contrast, employees have little or no control over the situation. They will have been presented with what is in effect a legally binding contract (with too many over-complicated legalistic clauses) that seeks to compromise all actual or potential employment claims – many of which they will not know (nor can they be expected to know) that they have the right to.

One way in which the law recognises that there is an imbalance of power in these situations is in the statutory requirements at section 203(3) Employment Rights Act 1996:

• the Agreement must be in writing;
• the Agreement must relate to the particular proceedings;
• 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;
• there must be in force, when the adviser gives his advice, a contract of insurance, or an indemnity provided for members of a professional body, covering the risk of a claim by the employee or worker in respect of loss arising in consequence of the advice;
• the Agreement must identify the Adviser; and
• the Agreement must state that the conditions regulating Settlement Agreements under this act as satisfied.

These statutory requirements call for employees to take legal advice ‘on the terms and effect of the proposed Agreement’ which may go some way to rebalancing the bargaining power.

Our Team of specialist Employment Solicitors has a wealth of experience in advising employee clients on Settlement Agreements. If you have been offered a Settlement Agreement, then please feel free to get in touch settlementagreement@thompsons-scotland.co.uk

Blog by William McParland, Employment Lawyer