What is a settlement agreement?

When you are looking for a way out…

Everyone who employs a member of domestic staff always hopes that the relationship will work out well and to mutual advantage, and in most cases it does precisely this.

But there are occasions when perhaps you become dissatisfied with the way your member of staff is working, perhaps there are issues in their interaction with family members, perhaps the member of staff loses interest, finds outside interests and relationships that appear to diminish their commitment to working in your home?

Of course you will, or should, try and resolve the situation satisfactorily; discussion is always the best first step.  Don’t just brood on it, bring it into open discussion.

But sometimes this will fail and you really will feel you need to end the relationship.  There are procedures which have to be worked through to ensure that you dismiss the employee fairly.

One procedure which can be very useful in this respect but of which many people are unaware, is the “settlement agreement”, formerly known as a “compromise agreement.”

A settlement agreement is a legally binding document which contains the full terms of a deal agreed between the employer and the employee whom you wish to dismiss.

Using a settlement agreement your employee agrees to waive their right to take you to an employment tribunal, but to achieve this protection the settlement agreement must be properly drafted to ensure it meets legislative requirements and should always be prepared by a solicitor.

One of the major benefits of the approach is that your discussions with your employee can be carried out under the umbrella of a “protected conversation”, the contents of which cannot be used in any following claim of unfair dismissal against you.

For your employee to waive their rights to go to an employment tribunal, YOU have to give something in return and this will usually be a financial settlement, and often the employee will negotiate for a reference for future employment.

Not unnaturally, you are not the only one in the relationship who can turn to a legal advisor.  Your employee has that right and you have to pay for the cost of that advice.

So it’s a matter of swings and roundabouts:  you can terminate an employment contract in this way, subject to employee agreement, and there will be cost.

As always, we recommend that you take independent professional legal advice before entering into any such discussions.