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It isn’t working out….is a settlement agreement the answer?

Small businesses are like families and it’s difficult enough to part company with employees without having to go through painful time consuming processes. A voluntary settlement agreement can be a swift and decisive thing and, well managed, everyone can part on a friendly basis. So how does it work?

Small businesses are like families and it’s difficult enough to part company with employees without having to go through painful time consuming processes that lowers morale and leaves a nasty taste. But a voluntary settlement agreement can be a swift and decisive thing and, well managed, everyone can part on a friendly basis and free from litigation risk.

So how does it work?

Employee A has worked for Employer Y for some 3 years, long enough to have the right to bring an unfair dismissal claim if he were to be dismissed. A is however a far from satisfactory employee has had some absences and made a number of mistakes, he no longer seems interested or excited about his work. Y turns to myHRdept for help securing a rapid exit for A and the initial task, assessing whether A has any protected characteristics (PCs) that might be impacting on his performance, is completed over the phone in a few minutes – he does not indeed have any PCs.

myHRdept draft a performance/absence management plan for Y to commence with A, BUT, at the same time and recognising that A seems no longer to be enjoying Y’s employment, we also draft a completely voluntary settlement option for A. In the meeting, scripted by myHRdept for Y, A is presented with 2 clear choices: 1) a performance improvement plan, under which if A does not significantly raise his game, he could leave with nothing and 2) a purely voluntary settlement agreement under which A will leave with his notice paid and a good reference. The choice of 1) or 2) is entirely A’s. In the meeting he says he would rather have the payment and takes the settlement agreement to his chosen solicitor (for which Y gives A a £350 budget) which is duly signed and A leaves, taking his reference and his notice pay in lieu.

All in all this has cost Y the cost of preparing a settlement agreement, £350 for A’s legal advice, and the value of A’s notice, which he would have been entitled to anyway. The process took 10 days to conclude, the bulk of which Y allowed A to remain at home for.

What’s the catch? Providing the process is done properly, and it genuinely is entirely voluntary on A’s part, there isn’t one. In these circumstances some employees will try and negotiate a higher settlement, but in our experience most tend to go quietly in order to avoid the alternative route, in this case a performance management process.

There are of course some golden rules:

  • Always take advice (myHRdept is a fraction of a solicitor’s costs for doing these)
  • Make sure that sub-standard performance etc. isn’t due to a reason that is protected in law – e.g. a disability (there are 9 protected characteristics)
  • Always have (and be prepared to use) a viable and fair plan B if the employee doesn’t want the settlement route
  • Use a script to introduce the settlement agreement under a S111a ERA tag and also on a Without Prejudice basis (we can explain to clients what this means) – otherwise your confidential proposal will not be confidential
  • Give the employee 10 days consideration time (in practice many agree much sooner)
  • Consider referring any attempts to negotiate terms to myHRdept (or your legal advisor) who will know when offers should be entertained/countered
  • Keep the signed settlement agreement and stick to it – particularly the employment reference (which is normally contained in the agreement)

If you're thinking of outsourcing your HR or employment law needs, why not contact myHRdept? Call us on 01628 820515 to discuss your requirements or contact us and we’ll call you back.

We'd love to stay in touch.

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