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Your reasons for offering an employee to leave on mutually agreed terms will vary. For example, concerns about the employee’s job performance or suitability to remain in post may exist, or perhaps there is a clash of personalities.
You may have to implement a business re-organisation or redundancies. You may wish to conclude a serous disciplinary or capability or long-term sickness absence case. Or perhaps, the employee has raised a grievance that highlights a break down in trust and confidence.
Using a settlement agreement is the best way of achieving a swift and comprehensive resolution.
Settlement Agreement Benefits
Flexible and certain
Whatever the situation that needs to be resolved, for most employers using a settlement agreement is the preferred way of parting company with an employee on agreed terms because of the commercial and practical benefits they provide.
Less hassle and conflict
A settlement agreement avoids the time and uncertainly involved in having to complete the relevant formal capability, redundancy, disciplinary or grievance procedure.
A settlement agreement invariably saves time, legal costs and provides a guaranteed outcome. It avoids ending up with a disputed outcome or dismissal and the increased risk of an employment tribunal claim.
The terms of settlement can deal with all aspects of the employee’s departure including for example references, announcements, withdrawal of subject access requests, share holdings and taxation issues.
A mishandled, clumsy or inappropriate offer of settlement can easily result in the employee getting upset, and then it taking much longer to reach agreement. Worst still, the offer is rejected and you face an employment tribunal dispute. Advice from Quantrills will help you avoid any such outcomes.
Simon Quantrill | Managing Partner
How we can help
Working out what to offer
For any given scenario we can advice on what amounts to a reasonable and justifiable offer of settlement, based on the facts and merits of your reasons for making the offer and any actual or potential employment tribunal claims.
In practice, you can offer less where you have good reasons to be making an offer of settlement, compared to a case where the employee’s contractual or legal position is stronger; then you will invariably have to pay more. We will recommend the minimum offer you will need to pay and confirm the maximum compensation you may end up paying. Our job, however, is to help you pay no more than you need to.
Drafting the settlement agreement terms
We will also guide you on what other non-financial terms should be included in your offer. For example, the termination date, the reason of termination, any contribution towards the employee’s legal fees, whether to fund outplacement advice, return of property, the provision of an agreed employment reference, confidentiality obligations, observance of existing or new restrictive covenants etc.
We will then prepare all necessary bespoke documentation including the “without prejudice” offer letter and a draft settlement agreement.
Our advice will include how best to structure the financial aspects from a tax perspective.
We will discuss your tactical options, your preferences and the risks for each. For example, if the employment has not ended, will it be best to let the employee stay at work, or to go home on special paid leave whilst negotiations take place?
Our step-by-step advice will guide you on how and when to make the offer. Simply sending an offer to the employee is the high risk, clumsy approach that will invariably end in tears, both for you and the employee! Therefore the timing, content and style of communicating the offer and the reasons for it are all essential considerations that together help ensure the offer of settlement will be well received and minimises the risk of the employee refusing to engage in the negotiation process.
Once the offer has been made, you can expect the employee in many cases to seek to negotiate an increase on the financial terms and may well seek changes to some of the other terms of the settlement agreement. We can advice on the appropriate response for you to give or you can instruct us to conduct all of the negotiations on your behalf.
Severance negotiations for senior employees and directors
Invariably for offers of settlement involving these types of employees, our advice will include confirming how best to deal with any shareholdings, performance related bonus schemes, long contractual notice periods or any guaranteed exit or termination payments. Specialist tax advice may also be required.
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