The Pros and Cons of Employee Settlement AgreementsI was delighted this week to find myself interviewed by the BBC as part of the Sunday Politics West Midlands Programme. The topic for debate was settlement agreements, this arose from some recent  BBC research which highlighted an increasingly significant spend by one local council on these agreements, so I was invited along to cast some light on what is by no means a straightforward topic.

Settlement agreements have been in operation for some time and can be used widely within organisations, they were previously referred to as compromise agreements. Settlement agreements are legally binding documents.   They are entered into between the employer and employee and can be a useful tool in providing a clearly defined break in the employment relationship and/or dealing with a dispute or claim which is to be settled between the parties.

As with any contractual arrangement there is an offer, an acceptance and a consideration involved.  Each agreement will include the details of the claim to be settled as well as details of any payments to be made, relevant tax clauses, as well as any confidentiality clauses.  These confidentiality clauses are often intended to prevent the parties disclosing the content of the agreement and/or badmouthing each other.  What the confidentiality/gagging clauses do not do however, is prevent an individual from reporting wrongdoing (whistleblowing) in accordance with the Public Interest Disclosure Act 1998.

Emotions are often heightened at a time when settlement agreements are entered into and, therefore, it’s always important that the parties are sensitive and mutually respectful in their dealings and handling of these matters.

Settlement Agreements can be beneficial to the employee as sometimes bringing about a tribunal claim can be costly, not only in the financial sense but also in the emotional sense. Claims can take a long time to get to a tribunal hearing, they can be incredibly drawn out and, of course, there’s no guarantee of the outcome.  A settlement agreement, therefore, offers an individual the opportunity to resolve matters swiftly and to have an element of certainty, i.e. the sum and/or reference which is agreed by way of a consideration.

The benefit to the organisation is similar in so far as the matter can be resolved swiftly, it also limits the ability of an individual to bring about a claim and thus reduces any damage to reputation.

One thing that is vitally important, however, is those organisations that use settlement agreements must monitor and track these carefully. Whilst the content of the settlement agreement cannot be disclosed as the terms are confidential, organisations must tune into how and when settlement agreements are used as these could be masking unacceptable behaviours, leadership practices and cultures within an organisation. Bullying, harassment and victimisation may go undetected, particularly if there is a lack of correlation between any grievances raised and subsequent settlement agreements.

Other concerns, of course, raised in relation to settlement agreements are the so-called ‘gagging clauses’. Whilst the terms of a settlement agreement remain confidential, they won’t stipulate that an individual can’t report to an authority any malpractice which may constitute a protected whistleblowing allegation. Whistleblowing is a complex matter and probably the subject for another blog, in the meantime there is a lot of advice from the government.

Settlement agreements, at best, can offer a win/win to both parties. At worst, however, they can mask discriminatory practices, breaches of health and safety or unlawful leadership behaviours which, if left undetected or unchallenged can cause irrecoverable damage to a company’s reputation and can leave long lasting effects on the individuals concerned.