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Settlement agreements and whistleblowing


Should I sign one?

Settlement agreements are usually a good thing! They can provide a much-needed clean break between you and your employer, and avoid the need of going to court for months and incurring hefty legal fees. Quite often, employers even settle for higher sums of money than employees would normally receive by settling their claim in the Employment Tribunal.

If you’ve been offered a settlement agreement by your employer, you must absolutely seek independent legal advice before signing, otherwise the agreement won’t be legally valid. If your employer doesn’t cover the cost of any fees you might incur in doing so, you will need to speak with a lawyer or a trade union representative.

How do I settle?

Your employer may approach you with a settlement offer first, but you can also begin the process yourself. There are three main ways in which you can reach a settlement agreement with your employer.

Before starting your claim against your employer in the Employment Tribunal, you must begin Early Conciliation with ACAS – a free-of-charge process that helps parties resolve disputes. It’s a completely voluntary process, so your employer might not take part at all, in which case you’ll be able to start your claim. If your employer does decide to take part, ACAS will assist in reaching a settlement agreement.

If Early Conciliation is successful and a settlement is reached, your ACAS conciliation officer will help you and your employer record the terms of the settlement in a COT3 agreement. Once the COT3 has been signed, you will no longer be able to bring your claim in the Employment Tribunal. Note that unlike other settlement agreements, there is no requirement for the employee to receive independent legal advice for signing a COT3.

Before you begin Early Conciliation or start your claim in the Employment Tribunal, or at any point up to the day of the final hearing, you can send your employer a “without prejudice” letter offering them a settlement agreement.

By clearly stating that your offer to settle is “without prejudice” (e.g. in the heading of the letter), neither you nor your employer can use the offer to your, or their, advantage during the subsequent Employment Tribunal case. This means that you don’t need to worry too much about what you say in the letter, and have more room to negotiate.

Even if Early Conciliation didn’t work out, you and your employer can still agree to appoint a private mediator to resolve your dispute. Mediation usually involves an independent mediator facilitating a meeting between you and your employer, with the aim of reaching an agreement acceptable to both parties.

Mediation can be very effective, and can take place at any time, even after you start your claim in the Employment Tribunal. Your Employment Settlement Service (YESS Law) and DRAW Mediation are popular paid-for mediation services, but sometimes offer services free-of-charge for qualifying claimants.

Once the Employment Tribunal claim has been issued, the judge may offer you and your employer judicial mediation free-of-charge. It’s usually a good idea to accept judicial mediation (or ask for it if you haven’t been offered it), as it will save you both time and money. Judicial mediation is also low risk, as even if it fails (i.e. no settlement is reached), your case will still proceed to a hearing.

What do they actually do?

Typically, a settlement agreement provides for an employee to receive a sum of money (the “termination payment”) in exchange for dropping certain claims against the employer.

What follows are some of the key clauses contained in settlement agreements, and what you need to look out for when negotiating the contents of yours.

Having on record an official reason for the termination of your employment (e.g. termination by mutual agreement) will prevent future employers from wondering whether your contract was terminated because of your own shortcomings, such as poor performance or misconduct.

You should also consider negotiating a term requiring your employer to provide you with a reference. Typically, such a reference will reflect the agreed reason for the termination of your employment.

Sums of money payed under settlement agreements vary greatly, both in terms of amount and method of payment. They will often include:

  • Unpaid salary
  • Unpaid annual leave
  • Unpaid car allowance
  • Unpaid expenses
  • Unpaid maternity/paternity pay
  • Compensation for detriment/dismissal
  • Compensation for warranties
  • Notice pay

The more likely you are to succeed at trial, the stronger your negotiating position is. You might also consider having part of the sum paid into to your pension scheme for tax-efficiency.

As explained above, for a settlement agreement to be legally binding, the employee must receive legal advice. Therefore, your employer will normally pay a contribution towards your legal fees. Typically, this will be between £300-£500. If you’ve incurred exceptionally high legal fees, you should consider seeking a higher contribution from your employer under the terms of the settlement.

Note that your employer’s contribution towards legal fees is usually for advice on the technicalities of signing of settlement agreements, and not for advice on whether or not you should sign one. If you need advice on the latter, or would like a financial valuation of your claim, you should speak with a lawyer.

The main purpose of settlement agreements is to settle disputes, so your employer will invariably ask you to give up (i.e. “waive”) your right to pursue your claim(s) against them.

Your employer can’t ask you to give up any and all claims against them. Indeed, you can only be asked to give up specific claims, and each claim must be identified in the terms of the agreement, and must be limited to the context of your employment.

If you’ve already filed a claim with the Employment Tribunal, your employer will want to be certain that you’ll withdraw it before they transfer you the termination payment.

Note that once your claim has been withdrawn it will come to an end, meaning that you cannot bring another claim against your employer based on substantially the same grounds, unless the courts decide that it would be in the interests of justice.

Your employer might ask you to give them an indemnity (i.e. a promise to pay them compensation) if you decide to breach the terms of the settlement agreement, and bring a claim against them in the Employment Tribunal on substantially the same grounds.

If the sum of money that you would be required to pay under the indemnity is disproportionate or excessive, the indemnity may amount to a penalty clause and be legally unenforceable.

Normally, your employer will ask you to return all property belonging to them, and to delete any information relating to the business and its clients that might be stored on your electronic devices and servers (including anything on the Cloud). It’s very important that you do so, in order to avoid your employer from claiming breach of confidentiality.

If there is property that you were using during your employment that you’d like to keep (e.g. a company car), you could negotiate ownership under the terms of the settlement.

What if the agreement contains a confidentiality clause?

Confidentiality clauses in settlement agreements are common, and generally seek to prevent employees from disclosing information about the settlement, any sums received by the employee under the agreement, and any factual history leading up to the settlement. These clauses are sometimes referred to as “non-disclosure agreements” (NDAs) or “gagging clauses”.

If you’re asked to sign a settlement agreement that includes a confidentiality clause, you should be aware that there are limits on what can legally be gagged by your employer. Indeed, as you will read below, confidentiality clauses cannot be used to intimidate or silence whistleblowers.

Unfortunately, the law on confidentiality agreements is vague, and reform is long overdue. Protect is calling for reform to prevent the use of gagging clauses, and guarantee whistleblowers faced with settlement agreements legal advice on confidentiality issues.

In summary, confidentiality clauses cannot be used to prevent the following acts:

  • Whistleblowing under the Public Interest Disclosure Act 1998
  • Reporting criminal offences to the police and other law enforcement agencies
  • Cooperating with criminal investigations and legal processes
  • Reporting misconduct and breaches of regulatory requirements to regulators
  • Referring tax-related concerns to HMRC
  • Disclosure in the context of seeking tax, medical or other professional advice
  • Disclosure where required by law or regulatory obligation
  • Disclosure in order to comply with a court order

If your employer asks you to sign a settlement agreement that contains a clause which tries to stop you from doing any of these acts, you should refuse to sign the agreement until the clause has been removed, and explain that such a clause is legally void. Please be aware that it is only this clause which will be void. The rest of the agreement may still be valid and enforceable.

Equally, your employer can’t use any legal mechanism within the settlement agreement to prevent or inhibit you from doing one of these acts. For example, you can’t be asked under the terms of the settlement to warrant that you’re not aware of any reason why you would whistleblow under the Public Interest Disclosure Act 1998, if that’s not the case.

Can I still whistleblow if I decide to settle?

Yes, you can! As you have seen in the previous section, section 43J of the Employment Rights Act 1996, as amended by the Public Interest Disclosure Act 1998, provides that no clause in a settlement can prevent workers from making protected disclosures. So, even if you’ve signed a settlement agreement that claims to prevent you from whistleblowing, you’re still legally able to do so.

What happens if I breach the agreement?

If you breach the terms of your settlement agreement, your employer will have two options:

1. Enforce the terms of the agreement. If your settlement contains an indemnity clause (see above), you will have to pay your employer the sum of money specified in that clause.

2. Claim damages for breach of contract. As it’s difficult to estimate the monetary value of breaching settlement agreements, the amount of damages awarded by the Employment Tribunal varies significantly.

Need advice on this?

You can contact the Protect Advice Line for advice on settlement agreements and whistleblowing.

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