In many cases, settlement agreements appear to offer a win-win situation to both employers and employees.
However, even though an employee is obliged to get independent legal advice regarding the terms of the agreement and the effect on their ability to pursue any claim before an Employment Tribunal or other court, they may decide to go back on their word and breach the agreement. If this occurs, employers do not have to sit back and just accept the breach, they can take action.
What happens when the employee breaches the settlement agreement?
If the employee breaches an important term or condition in the settlement agreement before you have made the severance payment, you can refuse to pay this.
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In some settlement agreements, there may be provisions which state that if the employee does commit a material breach of the terms and conditions of the agreement, the employer is indemnified for any losses they suffered due to the breach, including all reasonable legal fees incurred.
To be considered a material breach, it must be a significant and serious act, not something minor or trivial. A good example would be if an employee goes ahead and lodges a claim to an Employment Tribunal.
Even if there is no such provision in the agreement, if the employee commits a breach after the payment was made, an employer can potentially claim for breach of contract and take legal action for damages for loss suffered as a result of the breach in the county or high court (or in Scotland, it will be in the Sheriff Court).
Do you want to find out more about settlement agreements?
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Our Employment Law Advisers are also on hand to give you advice. They can draft the agreement in line with your business interests and give you guidance and support throughout the whole process. Contact us to find out more about our fixed fee HR and Employment Law service and how your business can benefit.