Question: is it fair for my employer to offer me a settlement agreement as an alternative to dismissing me for performance-related reasons?

Chris Hadrill, a specialist employment solicitor at Redmans, answers the question:

“Is it fair for my employer to offer me a settlement agreement as an alternative to dismissing me for performance-related reasons?”

The question of whether it is ‘fair’ for your employer to offer you a settlement agreement is, almost exclusively, yes – there is generally no prejudice caused to an employee by the simple offering of a settlement agreement. The question here, therefore, seems to be: are the terms of settlement that my employer is offering me fair? An analysis of this question will invariably hinge upon two factors: one, the circumstances of the dismissal and, two, the terms of settlement that you are being offered.

The circumstances of your (potential) dismissal are relevant in order to assess the strength of your potential claim for unfair dismissal and, in turn, the reasonable value of your unfair dismissal claim – the higher the value of your unfair dismissal claim, the more ‘leverage’ that you will have in negotiations regarding a settlement agreement. If you are an employee and have sufficient continuous service to bring a claim for unfair dismissal (2 years from April 2012) your employer must, broadly, make a decision to dismiss you that is fair and undertake a fair procedure in dismissing you; if your employer does not take such steps then you may have a successful claim for unfair dismissal.

If your employer has concerns about your performance at work then it should generally take the following steps to dismiss you in order to avoid a successful unfair dismissal claim: any minor concerns should be dealt with through day-to-day management and, with regards to any formal concerns about your performance it must undertake an assessment to determine whether any formal capability procedure is necessary; it must (among other things) inform you of the reasons why it believes that you are allegedly underperforming; and allow you to comment on any alleged underperformance at a formal capability meeting. Your employer should also provide you with reasonable training to allow you to improve your performance, undertake regular reviews of your performance with you, and give you a reasonable time period in which to improve.

Your employer may, prior to the start of the capability process, during the capability process, or after the conclusion of the capability process, offer you what is known as a “settlement agreement”: this is a contract (regulated by statute) by which you generally agree not to pursue certain claims against your employer in return for various benefits (financial or otherwise). Whether the terms of the settlement agreement are fair must generally be measured by two considerations:

  1. Whether, from the perspective of your legal adviser, the value of the financial compensation and other terms of the agreement are reasonable, taking into account the circumstances of your case; and
  2. What you wish to derive from the settlement process

It you have been offered a settlement agreement and are researching whether what you have been offered is fair (and have therefore come upon this article) it is, unfortunately, not possible in this article to offer you advice on whether the terms of your specific settlement agreement are fair – it is advisable that you consult one of our solicitors (or indeed another firm of solicitors) in order to discuss the circumstances of your situation with them (your employer will normally offer to pay fees of between £350 plus VAT and £500 plus VAT for the purposes of you taking advice on the agreement). So, if you’ve been offered a settlement agreement get in touch with us by giving us a call on 020 3397 3603 or email us on