Staff matters: Growth in settlement agreements
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By Daniel Gorry, Legal director Scotland at WorkNest
In a progressively uncertain environment where Scottish businesses face financial pressure, employers want certainty around costs. This includes security that any unexpected significant expenditure won’t hit them, whether in legal fees or compensation, due to an employee leaving employment.
Likewise, because of rising costs, businesses must devote managerial efforts to operational matters and their continued survival. As such, they may not have the time to devote to managing an employment situation properly and in a way which minimises the risks of claims. Against this backdrop, we’re seeing an increase in employers using settlement agreements to terminate employment.
Exiting employees through settlement agreements carries its own financial implications but, if agreed, can result in a swift and controlled departure with little residual liability.
Why are more employers opting for settlement agreements now?
Firstly, they remove the risk of a tribunal claim.
Settlement agreements can sometimes provide an efficient way to eliminate employees who are costing the business money, such as those who aren’t performing and those on long-term sick leave where the management time that would otherwise be spent in dealing with the situation via performance or absence management could be substantial. As operating costs increase, they may be helpful to employers who need to reduce headcount but don’t have a strong enough reason to fairly dismiss.
In the current climate, organisations need everyone on the payroll to be productive and pull together for the company’s good. Employers want to ensure they get the most from their employees with limited time to dedicate to performance management or dealing with employment-related issues, and settlement agreements allow them to do that.
Furthermore, a lack of time or money for training can result in acts/omissions, which could give rise to liability which businesses will want to cover themselves against.
Are there any risks with using settlement agreements to get rid of people?
Settlement agreements are generally quick and, if agreed upon, provide certainty for both parties. But some claims can’t be settled.
Moreover, the employee may have unrealistic settlement expectations and expect a ‘blank cheque’, which could result in a lot of time spent negotiating only to reach an impasse. Then there’s the risk of developing a culture of offering settlement agreements, with employees expecting one to be offered in every case and it being viewed as a reward for poor behaviour.
The employee may also become more challenging if settlement negotiations are unsuccessful.
There are a lot of factors to consider before jumping straight to a settlement agreement and exploring all your legal options is key.
