Top 5 Tips on Settling Employment Disputes


There are numerous legal, practical and commercial reasons why businesses may seek to settle an employment dispute rather than fighting a claim in an Employment Tribunal.

Following the third webinar in our series on Employment Tribunal claims, here are our top tips for businesses on settling employment disputes:

  1. Be prepared 

Preparation is key before launching into a settlement discussion with an existing or former employee. 

HR managers will usually be familiar with how to conduct "without prejudice" discussions and "pre-termination negotiations" (also known as "protected conversations") with employees. Senior business managers should also understand how to conduct these types of discussions and receive relevant support and training before attempting to speak to an employee about the termination of their employment. Failing to do so may mean that a discussion intended to be a confidential, without prejudice discussion is later openly referred to by the employee and/or that the discussion is itself asserted to be a fundamental breach of trust and confidence by the business. Guidance scripts and notes are useful for managers to help prepare for these discussions.

Consider the key financial and non-financial components of the offer you want to make and know the business' upper financial limit to settle the dispute. Consider holding back some components so that you have something to give if the employee seeks to negotiate.  Have a plan in place if your upper limit is reached and the employee rejects your offer. 

2. Who to involve? 

Get key decision-makers involved early: if there are business critical deadlines dictating settlement terms and/or the timing of an employee's departure, ensure that key decision-makers are involved early on and are available to authorise the proposed settlement terms.

If a settlement discussion is being planned in the context of a formal HR process with an existing employee, consider who will be involved in and initiate the settlement discussions with the employee on the business' side; will this be someone involved in the formal process or someone more neutral?  A neutral manager not involved in an ongoing disciplinary or grievance process may receive a better response to a settlement offer from an employee than the manager conducting the formal process. This may also be the preferred approach to minimise the potential perception by the employee that the outcome of the formal process has been pre-determined.

3. Know your Plan B and be ready to implement it 

Where an Employment Tribunal claim has been filed, failing to reach an agreed settlement means the parties must continue to prepare for the Employment Tribunal hearing in line with the Tribunal's orders and directions.

Settlement discussions with employees still working in the business will undoubtedly have an impact on the ongoing working relationship. Ensure that you have mapped out and are prepared to continue with Plan B if the employee rejects your settlement offer. Where formal HR processes are underway, for example a disciplinary or performance management process, the business should be prepared to resume and conduct a fair process before making any final decisions. If the business is not in reality prepared or willing to implement Plan B, the overall settlement package may well end up being higher than initially budgeted for.

4. Assess the merits of the claim and defence

Understanding the strengths and weaknesses of both the business' and the employee's positions is key to formulating a settlement strategy and considering settlement terms. Understanding the facts, the legal position, the potential value of the claim and the risks on both sides will help maximise the prospects of achieving a settlement. For complex cases, for example discrimination and/or whistleblowing cases, this may require input from legal specialists to assess the merits of the claim and defence and to assist in identifying the best leverage points for a settlement offer.

5. Seek legal advice when documenting settlement terms

There are different ways of documenting settlement terms in employment disputes.

Simple contracts which seek to record settlement terms cannot effectively achieve a legally binding waiver of statutory employment rights and claims, but may be a simple and effective way of recording settlement of contractual disputes.  

An effective and legally binding waiver of statutory employment rights and claims requires either an ACAS conciliated COT3 agreement or a settlement agreement.

COT3 agreements become legally binding at the point that the ACAS conciliator notifies the parties verbally or in writing (usually by email) that a binding agreement has been reached. As COT3 agreements are often shorter than settlement agreements and do not require the employee/claimant to obtain independent legal advice, COT3-negotiated settlements can usually be more quickly and simply achieved.

With more complex cases, or where an employment dispute is being settled before the ACAS pre-claim conciliation process or formal Employment Tribunal process has started, a settlement agreement may be more appropriate. There are statutory provisions governing settlement agreements, including the requirement that the employee receives independent legal advice on the terms and effect of the agreement (it is best practice for the employer to make a contribution to the employee's legal fees for this). If you are using a template form settlement agreement, ensure it is up to date from a legal perspective. In particular, ensure that the settlement agreement does not seek to waive any rights which cannot legally be waived, for example and in broad terms, such agreements cannot restrict or prevent employees from reporting criminal wrongdoing or regulatory breaches or making protected disclosures under whistleblowing legislation. Careful and specialist drafting of these types of agreements is usually required and recommended to ensure the waiver of claims effectively covers the correct and relevant claims in line with legal requirements and best practice.

Please contact Sam Murray-Hinde or Lydia Christie if you would like to discuss how we can support and help you to settle Employment disputes and claims.  

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Preparation is key, whatever the background to the settlement, or its timing.

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