Can a settlement agreement be overturned?

Settlement agreements are often an attractive option for both employers and employees when resolving workplace disputes. However, it’s important for both parties to be aware of when these agreements become legally binding, as this signals that the terms of the contract can no longer be altered. This post answers the question of whether a settlement agreement can be overturned in employment law.

Explaining the process of a settlement agreement

Settlement agreements are typically made after an issue in the workplace has been raised and a dispute has begun. An offer of settlement is therefore often an alternative to an employment tribunal, which can be costly and take up a lot of time. This is in turn a more formal option for resolving a workplace dispute that should only be pursued after other informal efforts have been made. A settlement agreement is therefore usually offered several weeks after an issue has been raised. Settlement agreements are a type of contract that can be used to:

End a disagreement that occurs towards the end of an employment period.
Agree a compromise on the conditions under which an employee will leave their employment.
Resolve a dispute that does not lead to an end of employment.

A settlement agreement offer is made

The contents of this agreement can vary depending on the reasons for the settlement agreement being offered. For instance, an employer that wishes to terminate someone’s employment in the absence of a dispute will need to clearly outline the reasons why they are pursuing this course of action. Grievances are usually raised by employees, with the employer typically being the one to offer a settlement.

Although it doesn’t always have to be the employer that brings the idea of a settlement agreement to the table. Read our other blog ‘Can an employee request a settlement agreement?’ for more information.

The employee or employer can open negotiations

The exact time this can happen will depend on a number of factors and therefore vary on a case-by-case basis. It might be that settlement negotiations take place before the employee has left their job, but it could also be that they take place the same week that a tribunal hearing is due to start. Regardless, a settlement agreement should be brought forward as a draft document. The recipient then typically has a short time in which to respond to the proposal. Negotiations are often opened with the goal of resolving the case before it results in a long and expensive legal process.

It’s recommended that employees and employers receive counsel from specialist settlement agreement lawyers before they enter negotiations. This ensures you understand what is being offered and that you receive the most favourable outcome.

Agreeing and drawing up an agreement

Once the offer of settlement has been agreed by both parties, a final copy must be drawn up. For a settlement agreement to be valid, certain conditions (which are set out in section 203(3) of ERA 1996, along with corresponding provisions in other statutes) must be met:

The agreement must be in writing.
The agreement must relate to a “particular complaint” or “particular proceedings”.
The employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal.
The independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice.
The agreement must identify the adviser.
The agreement must state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied.

Signing the agreement

The settlement agreement must be signed by both parties to indicate that they accept its terms. Until the agreement has been signed, anyone can choose to cancel or withdraw from the agreement. However, once the contract has been signed by both the employer and employee, it cannot be withdrawn. Although it can be altered at a later date or even overturned in certain circumstances.

Employer advice on overturning settlement agreements

The law surrounding the negotiation of settlement agreements is outlined in section 111A of the Employment Rights Act 1996. An important provision that employers should be aware of when negotiating the terms of a settlement agreement is that both parties are afforded confidentiality. Sharing details of any settlement agreement negotiations, even after it has been agreed and signed, can open you up to liability.

Attempting to prove whether any of the bullet points to the right is the case can begin a lengthy legal process, which could be damaging for everyone involved. Therefore, it’s important that both parties receive expert legal advice.

So, can the decision to accept a settlement agreement be overturned? In short, yes. However, only if the following can be proven:

Where the conditions for a settlement agreement to be valid (section 203(3), ERA 1996) have not been met, for example an employee not being given independent advice on the terms and effect.
Where one party to what appears to be a valid settlement agreement argues that they had no capacity to contract, the tribunal is under a duty to examine that issue and if evidence establishes a lack of capacity the tribunal cannot find the agreement to be enforceable.
Where one party argues that they entered into the contract under duress and undue influence.
Where a contract is found to have been entered into on the basis of a misrepresentation. In the case of fraudulent or negligent misrepresentation, damages may be awarded.

When are settle agreements used?

The most common uses for settlement agreements by employers is in cases where there are potential employment law issues. This typically occurs in cases concerning unfair dismissal, discrimination and harassment claims, and redundancy. These agreements frequently contain confidentiality clauses or get combined with non-disclosure agreements to protect company interests. However, this can extend the legal process as these features usually come under increased scrutiny. To get the best result from settlement agreements, specialist employment law advice for employers is essential.

Experts on employment law for businesses

Every case is different when it comes to employment law. As such, businesses need legal experts to offer support in making key decisions such as settlement agreements. The team at Employment Law Services Ltd (ELS) partner with employers to provide ongoing support for managing HR procedures, contracts, and much more. We are then ready to review settlement agreement documentation when employee disputes arise. Make an enquiry with an expert by contacting us today.