Settlement Agreements – Common Employer Mistakes

employer and employee shaking hands

Settlement Agreements – Common Employer Mistakes

As an employment lawyer I have acted on both sides of settlement agreements for over 16 years.

They are definitely used a lot more nowadays and why not? They put to bed any stress or anxiety normally for both parties and allow each to move on quickly and painlessly.

Recently however I have come across a number of businesses who in my opinion are making life hard for themselves when using these types of agreement and making errors when producing their own documentation which often is a copy of a previously used document or a mish mash of a number of previously used documents and they are failing to hit the mark.

If the agreement is not correctly drafted, is it really then protecting the employer as is its intention?

Here is a list of the 5 most common mistakes/ errors I have come across in 2017:-

  1. Not properly representing the terms to the employee when handing the agreement over. For example “here is a package which includes your notice and an ex gratia payment of £20k”. When the employee gets to their representative it appears the agreement is £20k including notice. This gets the parties off on the wrong foot and although easier when handing over the agreement, it causes more longer term pain in terms of negotiations and often increased legal fees for both parties.
  2. Mislabelling notice or payment in lieu as an ex gratia payment. I can't advise on tax but as an employer you should seek proper advice as to the taxable status of any payments under the agreement. A tax indemnity is only worth the value of the person giving it remember.
  3. Agreeing to give a glowing reference but then back tracking on this and giving a basic reference. This causes a lot of upset to employees and makes some totally intransigent. You can only tell the truth in a reference so please don’t make promises you cant keep. 
  4. Not making confidentiality provisions and non- derogatory comment restrictions reciprocal at the outset. Why wouldn’t you do this? Any representative worth their salt for the employee will insist so again save time and cost.
  5. Not considering the situation holistically. For example, the interest of the employee is to move on, mitigate loss and get another role. Have you considered the value of outplacement services? Also do you insist of a provider of your choice or allow the employee to chose someone they are comfortable with? This can have great value to an employee and doesn’t always cost the earth.

So before you draft your next agreement consider all of the above points and if you are not a specialist, take some advice from one. This could save you legal fees and also a higher contribution to the employees and it might also result in a more amicable parting of the ways.

If you need any further information or help with settlement agreements please contact the team at Consilia Legal or contact me directly on Marie@Consilialegal.co.uk.

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