Employment Law Update
Employment Law Update06 March 2019 Written by James & George Collie

Settlement Agreements

One of the biggest headaches for a small business is navigating its way through the employment laws which afford protection to their employees.  More than 90% of all business in the UK are small businesses.  There is a perception amongst many that complying with all of the rules and regulations is costly and interferes with the commerciality of keeping a business afloat and hopefully profitable.  In a recent report by the Department for Business Innovation & Skills the government has recognised this and has stated further that it intends to regulate the labour market in a “light-touch way”.

business-people-shaking-handsWe have seen some legislative changes in recently that recognise this and there are more on the way.  For example last year saw the qualifying period for an employee to be able to bring a claim of unfair dismissal increase from one year to two years’ service.  It remains to be seen whether or not this will have a significant impact on the number of claims.  In 2012/13 there was a 74% rise in sex discrimination claims alone.  Why would this happen?  It is hard to tell, but 2010 saw the introduction of the Equality Act which provides extensive discrimination legislation and in order to bring a claim under discrimination provisions, there is no requirement for any length of service.  It may be that we will see more claimants who do not qualify for unfair dismissal protection to shoe-horn their circumstances to fit a claim of unlawful discrimination.

The main changes affecting industry this year are the introduction of settlement agreements and the introduction of employment tribunal fees, that must be paid by a claimant before his case will be accepted.

Settlement agreements were formerly known as compromise agreements, their purpose was to form a contract between the employer and employee.  Put simply, the employer would pay an amount of compensation to the employee in exchange for the employee signing away his right to make a claim against the employer.  However, it is more than just a name change.  In a situation where an employer wishes to terminate an employee’s contract, whether because of disciplinary, attendance, performance or personality or other issues, he is now free to offer a “settlement” before beginning proceedings against the employee.  This offer and any discussions around it are legally protected and “without prejudice”.  This means that as long as the employer follows the ACAS code of practice on Settlement Agreements, the fact that he has made such an offer cannot be used against him by the employee in future legal proceedings.  Already this is proving to be a very effective tool in some circumstances.  It saves the employer having to try to follow formal procedures that they may be unfamiliar with and allows the employee to leave with their dignity intact.

The system of tribunal fees means that employees are now required to pay a fee up front in order to have their claim listed.  Although it is now possible that a costs award in favour of the winning party can include the reimbursement of the fee, it is still likely to act as a deterrent to some employees.

More reforms are on their way.  Some are likely to benefit employees whilst others are likely to ease the burden for employers.

For advice on any employment law matter please contact Lili Hunter on 01224 581581 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it.

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