In employment law, a settlement agreement is a contract between an employee and an employer which settles a claim that an employee might have. Claims may arise due to breach of contract, redundancy, workplace discrimination or sickness absence deemed unacceptable.
In simple terms a settlement agreement is an offer. These types of agreements allow an employee and employer to reach a mutually acceptable arrangement and resolve an employment dispute on agreed terms. It brings clarity and certainty to a situation and effectively draws a line under the event or behaviour which led to the dispute.
If you decide not to sign a settlement agreement and the underlying cause has been your employer’s dissatisfaction with your work or unacceptable absences, they are entitled to invoke a disciplinary process. Equally, you are entitled to pursue a claim. In simple terms a refusal to sign a settlement agreement suggests that one of the parties is not prepared to accept an offer made. Any party is entirely entitled to take that approach.
The employer must notify the employee in writing that disciplinary action is being taken and why. The established disciplinary procedure should have been made readily available to all employees in a handbook or policy document from the start of their employment. The document should explain the process and list the scenarios that could lead to disciplinary action. You should set out the detail of your claim.
Most employers follow the code of conduct from ACAS but can adopt their own disciplinary procedure providing it is lawful, fair and transparent. Employees can take an employer to an Employment Tribunal if they do not comply with the steps laid out by law when carrying out the disciplinary process.
Settlement agreements can also be called compromise agreements; the name changed officially in 2013 when new provisions were inserted into section 111A of the Employment Rights Act 1996. In practice, the terms are still used interchangeably.
It is crucial to take legal advice before refusing a settlement agreement. Your employer may even encourage you to do so as they have an interest in protecting themselves from later action for unfair dismissal or discrimination. Generally, though not always, an employer will offer a premium or an additional amount, to encourage you to enter into a settlement agreement.
We routinely advise on these types of arrangements.