Settlement agreement proposal checklist

Use our checklist for proposing a settlement agreement to ensure you have all bases covered when contemplating and then subsequently negotiating a settlement with an employee. It’s always best to get legal advice here to stay on the right side of the law.

Before offer

There are a lot of matters to think about when considering and then negotiating a settlement agreement with an employee and our Settlement Agreement Proposal Checklist is designed to assist you with this. Before you take a decision whether to offer a settlement agreement, you need to think carefully about why you want to go down this route and whether it’s the best way to deal with an issue. Settlement agreements are normally used to bring an employment relationship to an end in a mutually agreed way, often in situations where employer and employee feel their employment relationship is no longer working.  They can, however, also be used to reach an agreed conclusion to a workplace issue which doesn’t result in termination of employment, for example, to resolve a holiday pay dispute. Where the issue is, say, performance, conduct or redundancy, you shouldn’t need to use a settlement agreement provided you’re willing to effect any dismissal fairly and following full and proper procedures. Also, there’s no point offering a settlement agreement to an employee whom you know won’t accept it - they’re voluntary and parties don’t have to enter into them if they don’t want to. Finally, be clear there’s no unlawful discrimination, harassment or victimisation or automatically unfair dismissal reason involved in offering a settlement agreement.

Offer and negotiation

You’ll need to think about what you’re going to offer the employee to agree to the settlement agreement. What the offer consists of will be for you to determine, but offers usually include a financial payment and an agreed form reference. You should take tax advice on the various elements of the payment and decide whether you’re willing to pay the employee’s reasonable legal costs of getting advice on the agreement. Before having any meetings with, or sending any letters to, the employee about settlement, ensure you understand the admissibility provisions relating to settlement agreement negotiations in employment tribunals and courts. Make sure your behaviour in conducting negotiations is entirely appropriate and professional and doesn’t put any undue pressure on the employee to accept the settlement agreement - you don’t want to find you’ve made the negotiations admissible in evidence because of your improper, unlawful or discriminatory conduct or, worse still, that you’ve committed a fundamental breach of contract entitling the employee to resign and claim constructive dismissal.

Drawing up the agreement

Once you’re ready to produce the agreement, check you’re aware of all the statutory requirements for it to be legally binding. It’s always best to get legal advice on it, so that: (1) it achieves the settlement you intend; (2) you fully understand the legal implications; (3) it settles the correct potential claims or complaints; and (4) it includes any additional specific employer-protective provisions you might require. Your lawyer can also help ensure the Acas Code of Practice on Settlement Agreements is adhered to, if applicable.