So you’re thinking of writing a settlement agreement to resolve an issue with one of your employees?

It’s understandable why you might want to. There are free template settlement agreements available online and lots of excellent informational sources.

What’s more, employment disputes can be expensive; there are the costs of investigating the issue, the legal fees, and the outlay of any settlement payments – not to mention the time spent handling all of this. So surely saving a bit of money with a DIY settlement agreement is the right way to go?

Sadly, no.

Drafting a settlement agreement is a complicated undertaking. They cannot be done informally. When done correctly, a settlement agreement should take into account a wide variety of legal and commercial considerations. And with so many snares awaiting the unwary draftsman – we’ve set out 5 reasons why we believe that writing your own settlement agreement is the wrong choice.


1.   Your settlement agreement could be invalid

For a settlement agreement to be legally valid and enforceable, it must include certain required elements.

One of these is that the settlement agreement must refer to the specific proceedings or dispute which it is intended to resolve. This could be a claim for unfair dismissal or discrimination, for instance. But if you don’t have a legal background, you might not be clear on the exact claims your employee could bring.

There are other formalities as well, such as: there has to be a statement contained within the settlement agreement that all legal requirements have been satisfied.

If your settlement agreement does not meet the legal requirements to be valid, it will not have any legal effect. However, on the plus side, it is unlikely that an invalid settlement agreement would get past the signature stage. This is because an employee is required to obtain legal advice before they sign a settlement agreement, and this must be certified in the agreement itself. Any errors which render the settlement agreement invalid should be picked up at this stage. But even so, if you put forward a settlement agreement which is incapable of taking effect it will likely cause delay and frustration.


2.   Following a template will restrict your options

You might be tempted to avoid the problems in Reason 1 by following a template settlement agreement. A template from a reputable source should have all the legal formalities covered (although without expert oversight, can you really be sure?).

But using a template raises another issue: will the settlement agreement be right for your specific situation?

One of the key advantages of settlement agreements is their flexibility. Beyond the required elements, settlement agreements give you a lot of freedom when setting terms. This allows you to tailor the terms you are offering to meet the needs of the dispute. Usually this will be a balance between a fair, attractive offer and the best interests of your business. But what this looks like in practice will vary from employee to employee and business to business.

If you are following a template, much of this flexibility will be lost. How confident would you be in diverging from the template? And could you do so whilst keeping your terms clear and precise?

Instructing an employment solicitor with expertise in settlement agreements will give you access to a much broader range of possibilities. They can take your objectives on board, advise you how they might be achieved, and draft a settlement agreement to match.


3.   Settlement agreements need precision

A settlement agreement is essentially a contract between you and your employee about how you will resolve the dispute at hand. This means the wording you use must be precise so that it will have the exact effects that you and your employee expect.

Any ambiguities in the terms could render them invalid or spark further disagreement at a later stage.


4.   Context is important

Using a settlement agreement to successfully end an employment dispute needs appreciation of more than just what’s written within.

For example, if you offer a settlement agreement too soon, perhaps before your employee has any idea that there is an issue, it can be seen as heavy-handed, and could erode trust between you. Similarly, putting forward terms which have no realistic prospect of acceptance will likely only succeed in reducing your employee’s willingness to negotiate.

And some of these actions can have legal consequences. For example, presenting your settlement agreement as an ultimatum, or putting undue pressure on your employee to accept, can remove the confidentiality protection which usually applies to the pre-settlement-agreement communication.

These might all be ‘secondary’ considerations to creating a settlement agreement, but they are no less important than the terms you include. Obtaining legal advice can help with this wider context as well as with the settlement agreement itself.


5.   Is writing a settlement agreement yourself really going to save money?

Any cursory glance at a guide on settlement agreements will tell you that there is a lot to learn on the topic! And you will need detailed knowledge if you are setting out writing one yourself.

‘Time is money’, as the old adage goes, and your time is likely much better spent running your business than wading through the complexities of settlement agreements.

Engaging a specialist employment lawyer to advise on, and draft, your settlement agreement will save you that time. True, it will mean another expense. But this might actually save your business money in the long run; firstly, by ensuring you have a settlement agreement that is valid and protects your business interests; and secondly by giving the settlement agreement its best chance of success – thereby affording the best chances of avoiding the further costs of a protracted dispute or tribunal hearing.

It is also worth remembering that, often with legal work, the costs of doing something right in the first place are much less than the costs of fixing it later on.


Can we help?

At Truth Legal, we have assisted many clients with all aspects of settlement agreements, whether they are employers or employees.

If you would like to discuss your situation with us, please don’t hesitate to get in touch.

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Catherine Reynolds
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