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Urging employers to embrace settlement agreements to resolve workplace disputes

29th May 2025

Our Employment Law team are advising employers to make greater use of settlement agreements as a practical and cost-effective solution for resolving workplace disputes. In today’s legal landscape, employment tribunals encourage early, fair, and constructive resolutions, and settlement agreements are becoming an essential tool for businesses.

A settlement agreement is a legally binding, confidential agreement between an employer and an employee to resolve an employment dispute. Often, these agreements involve a financial settlement in exchange for the employee waiving future legal claims. They offer a way to end employment amicably and without the need for lengthy tribunal proceedings.

A Smart Solution for Employers

Kerry Hudson, Employment Solicitors says: “Settlement agreements are a valuable resource for employers seeking to avoid the expense and risks of employment tribunal claims. The focus is now on resolving issues before they escalate, and settlement agreements can save businesses tens of thousands of pounds in legal fees, compensation, and reputational damage.”

Settlement agreements are particularly effective in situations such as redundancy, long-term sickness, personality clashes, or potential misconduct. In these cases, formal processes can be costly, time-consuming, and often end in lengthy litigation. A well-handled settlement agreement can offer a quicker, less stressful alternative.

Employment Tribunals Encourage Early Resolution

Employment tribunals increasingly encourage employers to resolve disputes before they escalate into formal claims. Tribunals may recommend that parties engage in settlement discussions before a hearing begins. Employers who fail to engage in these discussions may be seen as unreasonable, potentially affecting the tribunal’s judgment on costs and outcomes.

Kerry says: “The tribunal system is under significant pressure, and the message from the courts is clear: resolve issues early and amicably whenever possible. A well-managed settlement agreement not only protects your business but also demonstrates fairness and a pragmatic approach to resolving disputes.”

Why Employers Should Consider Settlement Agreements:

Financial Prudence – Avoid costly legal fees, potential tribunal awards, and reputational damage.
Certainty & Closure – Settle disputes and close off future legal risks.
Confidentiality – Protect sensitive business information and preserve brand integrity.
Efficiency – Resolve disputes quickly and avoid lengthy legal battles.

Legal Guidance Is Essential

It is crucial that settlement agreements are carefully drafted and legally compliant. Employees are entitled to independent legal advice before signing, and it is important that the process is transparent and conducted in good faith. Kerry advises employers to be open to settlement discussions and to approach these conversations professionally, with a clear policy and legal framework in place.

With offices in Coventry, Warwick, Balsall Common and Southam, we offer expert, business-minded legal advice on settlement agreements, employment disputes, and risk management. Our Employment Law team works closely with employers to draft tailored settlement agreements, negotiate terms, and mitigate long-term risk.