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Settlement Agreements: Terminating an employee’s contract

It is quite possible that during the course of your role as an employer, you’ll need to terminate a worker’s employment contract, either as a result of a redundancy or through dismissal. This could lead to claims of unfair dismissal by your employee, such claims can be:

  • Expensive
  • Time consuming
  • Stressful
  • Damaging for your reputation
  • Damaging to relationships with staff

However, there is a way that employers can prevent this happening.

What is a Settlement Agreement?

A settlement agreement is a legally binding agreement between you and your employee in which the employee signs away their right to bring a claim in the tribunal. It is the only way you can legally prevent an employee bringing a claim against you in the Employment Tribunal. The Law says any other agreement which tries to do this is void.

It also ensures that the circumstances surrounding the termination of the employee remain confidential.

It can provide for an appropriate “pay off” of any rights which the employee may have.

Why should I use a Settlement Agreement?

There are many reasons why you would want to use a settlement agreement to terminate an employee’s contract. These include shortening the redundancy process and dismissing an employee without a long drawn-out process such as a Conduct or Capability Review.

The settlement agreement will provide you with a clean break and cancel out your employee’s rights to take you to Employment Tribunal or to Court with regard to the termination.

A negotiated agreement is far more likely to be mutually fair and thus prevent damaging disputes because of actual or perceived sense of grievance.

Why do I need a Solicitor?

Dismissing an employee without following the correct procedure or having a fair reason to do so is likely to lead to a claim for unfair or wrongful dismissal. A Solicitor can draft a settlement agreement that takes into consideration the specific circumstances regarding the termination, ensuring a glitch-free parting of the ways, whilst avoiding the risk of any dispute or litigation.

A Solicitor can cover off issues such as :

– Protecting you against your employee making disparaging remarks about your company
– Enforcing any specific post-termination obligations such as:

  • Not competing unfairly
  • Keeping confidential information confidential
  • Returning company equipment
  • Advising on a correct settlement figure if an employee has rights which need to be “bought off”

Do you have a problematic employee?

Do you think it is necessary for your business to terminate an employee’s contract but assume that you can’t do anything about it?

The law allows employers to deal with difficult employees – it just expects them to follow a fair process.

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