Settlement Agreements and Departure Advice for Employers

A protected conversation allows employers to have open and honest conversations with employees who they may be considering dismissing, without those conversations being admissible in a court or employment tribunal in any subsequent claim for unfair dismissal. In many cases a protected conversation can cut through formal processes and allow an employee to leave with dignity.

They can be used in a wide variety of situations, including performance management, conduct, ill-health and redundancy situations, or where an organisation wants to discuss possible succession planning or retirement. Whilst they are useful, there are some exceptions to them being relied on at a later stage in a tribunal, for example where there is an element of discrimination or where an employee is claiming constructive dismissal or breach of contract. 

A settlement agreement (previously called a compromise agreement) is a contract between an employer and an employee in which the employee agrees to waive any employment claims they may have.  They are used in a variety of different situations from dealing with long-term absence or poor performance to redundancy exercises or where a business needs to provide for succession.

Settlement agreements are particularly useful as they provide both parties with certainty of what will happen on the termination of employment and that no claims will be brought. They can also be used when an employee is remaining with the business. 

Settlement agreements also allow provisions relating to confidentiality, announcements and non-derogatory statements to be included. This helps the departure of an employee to be smoothly managed whilst giving the employer the comfort of knowing they will not then face an employment tribunal.

Handling executive departures can be time-consuming and sensitive for businesses. Depending on the executive, there often has to be careful consideration of how this is managed both internally and externally, as if handled badly it can be potentially damaging to the business’ reputation.

Also, executives tend to have more complex packages involving shares, option schemes, long-term incentives and directorships and it is important that all of these are considered when negotiating an executive’s departure.