Statutory requirements
The basic position is that the right of an employee to pursue a matter in an Employment Tribunal cannot be excluded under contract between (ex-) employer and employee.
However, there are 2 main exceptions to this rule:
- Where there has been a formal settlement agreement fulfilling the condition set out in s.203 of the ERA 1996; or
- Where the ACAS conciliation officer has taken action under s.18 of the Employment Tribunals Act 1996, normally involving a COT3 form of settlement.
To comply with s.203 ERA 1996 an agreement must:
- be in writing;
- relate to the particular proceedings or the specific claim being settled;
- identify a relevant independent adviser from whom the employee has received advice as to the terms and effect of the agreement. In particular the employee must have received advice as to the effect on his ability to pursue a claim in the Tribunal;
- ensure that the adviser is covered by professional indemnity insurance; and
- state that the conditions regulating settlement agreements are satisfied.
If the settlement agreement does not comply with the s.203 ERA 1996 conditions, it will be void against the employee’s statutory claims (i.e. the employee will be able to bring his/her statutory claims against their former employer). However, it will still be effective to bind the employee in respect of the waiver of any contractual claims.
The first £30,000 of a payment as genuine compensation for loss of employment can be paid tax-free. However, if the payment is contractual (e.g. a payment for unused holiday) the payment will be subject to tax.
Negotiation points
Solicitors must give careful thought to the contents of what the settlement agreement should cover. A solicitor acting for the employer in a dismissal claim, for example, will want to ensure that the payment settles all claims (whether or not they have been made) for wrongful and unfair dismissal, discrimination and claims outstanding when the employment is terminated.
In contrast, an employee’s solicitor will want to ensure that the wording of the settlement document is broad enough to allow his client flexibility to bring subsequent claims, e.g. in respect of future pension rights and personal injury. These two types of claim are often excluded by an employee’s solicitor on the basis that they are common examples of claims which an employee may need to bring after he has signed the agreement but which were not within his knowledge, nor in his reasonable contemplation, at the time. An employee’s claim in relation to his loss of pension rights, for example, may not arise until a considerable time after he has entered into a settlement agreement.
It is important to note that it is unlikely that the wording of an agreement would prevent an employee from bringing a claim which was not known about nor could have been known about at the time agreement was entered into.
References
The general rule is that an employer is not under a duty to provide a reference for an employee or ex-employee, but if the employer does provide a reference, the employer should take care to provide a reference which is true, accurate and fair otherwise the employer may be liable for deceit, defamation and/or negligent mis-statement. To avoid any future problems with trying to obtain a reference, an employee’s solicitor is likely to negotiate agreed wording for a reference as part of the settlement agreement, as the employee will usually need a reference to secure a job with another employer and the Employment Tribunal has no power to order an employer to provide a reference in respect of an ex-employee.