Employment disputes are increasingly leading to lengthy delays in resolution, with some cases being pushed years into the future. Due to this backlog, more employees and employers are turning to settlement agreements as a faster and more confidential alternative to formal legal proceedings. This article delves into what settlement agreements are and their possible impact on business relationships.
Key Components of Settlement Agreements
Settlement agreements include the following basic components:
- Compensation: This includes the outstanding salary, notice pay, holiday pay, and a certain additional amount which is given in exchange for the employee relinquishing certain legal rights. Appropriate circumstances can lead to certain types of compensation being completely tax-exempt.
- Confidentiality Clauses: Both parties equally have their privacy protected through the use of these clauses as they ensure confidentiality for the terms of the dispute as well that’s the settlement agreement.
- Waiver of Claims: The employee willingly agrees to give up any rights that they may have against their employer, for example, their right to claim unfair dismissal or discrimination against them.
- References: To these clauses, the employer is obligated to prepare and sign a reference in favor of the employee for use in their future job applications.
- Non-Disparagement Clauses: These prevent any of the parties from disparaging each other after employment has been terminated.
Legal Requirements for Settlement Agreements
In the United Kingdom, a settlement agreement is legally binding if the following requirements are met:
- It must be in writing.
- Concern particular grievances or litigation.
- Confirm that an independent adviser, such as Gordon Turner employment lawyers, unrelated to the employer’s organisation gives the employee advice about the terms of the agreement and its consequences.
- Identify the person providing the advice in the agreement and stipulate that he or she holds adequate insurance.
- Confirm that these legal requirements have been fulfilled.
These reasons show that the employee has full comprehension and voluntarily consents to the terms of the agreement.
Advantages of Settlement Agreements
A settlement agreement works to resolve disputes without the expenses or complexities of employment tribunal hearings, making it a simple and effective way to solve disagreements.
It also makes the assurance of terms that benefit the business possible, undermining the need for disclosure, which protects the company’s reputation.
Employees receive the benefit of being financially compensated over and above their statutory requirements, as well as the confidentiality of their departure. A previously agreed-upon reference can also bolster prospective employment opportunities.
Disadvantages and Considerations
One potential issue is expecting employers to pay an unjustifiable settlement amount, for example where employees use their strong bargaining power. Such a scenario can encourage employees to expect the same benefits during future disputes, thus creating a precedent. Costing off a settlement could signify guilt, leading to reluctance on the company’s behalf due to the harm it could do to the reputation.
Signing a settlement agreement renders employees/claimants unable to take further action which can lead to unforeseen consequences such as loss of potential information. To shield themselves from the negative impacts of the agreement, employees should obtain unaffiliated legal counsel and examine their available options.
Impact on Business Relationships
If used correctly, a settlement agreement can be an effective substitute for litigation for all parties involved. Otherwise, the improperly utilized agreement has the potential to breed feelings of resentment and being treated unfairly, and such sentiments can continue to impact the entire workplace culture, including the feelings of remaining employees, which is not healthy.
There are circumstances where agreements stem from more complex disputes. For example, more than 60 franchisors challenged Vodafone over arbitrary business decisions which led to a breach of franchise agreements and also put the company’s Vodafone franchise umbrella which cost them an excess of $150 million. In this instance, business relationships underline the need for precise and fair dealings.
Case Studies Illustrating the Impact of Settlement Agreements
Here are some notable UK examples highlighting settlement agreements and how they define the landscape of business relationships.
- Mastercard’s Settlement Over Excessive Fees: This matter featured approximately 46 million consumers who, through legal action, contested the allegation made against Mastercard regarding the exorbitant card transaction fee. Legislation in the United Kingdom has come a long way since the introduction of class action lawsuits for breaches of competition law.
This case is a perfect example of settled cases setting a precedent for large corporations to avoid similar disputes in the future and changing the status quo on charging fees and engaging with consumers.
- Post Office Horizon Scandal: The Post Office responded to a group litigation order that was filed by 555 sub postmasters that accused them of financial misconduct based on the malfunction of their Horizon accounting system. This case was settled for the sum of £58 million, yet once payment of legal costs was deducted, the claimants were left far short, receiving less than £12 million.
This case demonstrates the need for transparency and the risk new relationships and reputations have about loyalty when more serious issues are not dealt with on time.
- Prince Harry’s Settlement with News Group Newspapers: Prince Harry won the first stage of a significant battle against News Group Newspapers, the publishers of the Sun, with Prince Harry winning his case based on their self-described “historic admission” regarding the illegal practice of phone hacking. It was settled at £10 million, where they sold him the settlement in which he received a blanket apology.
This highlights how surrendering finances through settlement agreements can be made to alleviate wrongfully accused parties by restoring their good name, businesses, or relations.
Conclusion
Settlement agreements allow the efficient resolution of matters covered however, in a book anything one may regard as confidential. The UK has particularly stringent guidelines regarding them that need to be complied with and while there are many positive aspects to these, both sides have to be prudent about the details of the agreement for fear of negative consequences.