An employer has a legal obligation to abide by the terms and conditions agreed with an employee as part of a settlement agreement. As a result, breaching the terms of the agreement on the part of an employer can have several significant implications, potentially paving the way for damages claims to be brought by the employee for breach of contract.
In this article, we will be taking a closer look at the consequences of breaching a settlement agreement. Although we will be focusing specifically on breaches made on the part of an employer, many of the points can also be applied to employees as well.
Why do settlement agreement terms matter?
Settlement agreements often offer a win-win scenario to both employers and employees. Although the specific terms and conditions of the agreement may vary from case to case, all settlement agreements will see some kind of financial compensation awarded to the employee. In exchange, employees must formally agree not to pursue any claims they might have brought against the employer such as pursuing their case in an Employment Tribunal.
The specifics of the agreement are set out in its terms and conditions which can cover everything from the amount of compensation awarded to the confidentiality surrounding it. The agreement becomes legally binding once both parties have signed it. From that point onwards, any potential breaches of those conditions may lead to either side taking legal action in the courts.
How can a settlement agreement be breached?
Any violation of the terms set out as part of a settlement agreement can be described as a breach, and there are many ways in which parties may fail to honour the agreement. Some of the most common violations on the part of employers and employees include:
Inadequate or delayed payments that are specified in settlement agreements
All settlement agreements include some form of financial compensation. The agreement’s terms and conditions set out the specifics of these payments, detailing the extent of compensation as well as the relevant timescales. Late or inadequate payments are a prime example of a settlement agreement breach.
Confidentiality breaches of settlement agreements
Confidentiality is a central component of settlement agreement negotiations. As such, settlement agreements will always include a confidentiality clause of some kind, which could cover information relating to the employer’s business, the events leading up to the agreement or the terms of the settlement. Clauses that prevent the employee from making derogatory comments about the employer and its staff are equally common.
Unwarranted Employment Tribunal claims
The main purpose of employment settlement agreements is to settle disputes between employers and employees out of court. If the employee continues to pursue a claim at an Employment Tribunal despite having signed a settlement agreement, the agreement is likely to prevent that action. However, the employer will seek reimbursement of its costs in defending the claim through a breach of contract claim against the employee.
What happens if a company breaches a settlement agreement?
The legal consequences of either party breaching a settlement agreement vary depending on the terms and circumstances. The most common course of action is for the party who has been subject to the breach to seek legal advice about available options and then to seek to resolve the issue through conciliation, mediation, or the courts if necessary.
In cases where the dispute or breach cannot be resolved in this way, the infringed party may wish to bring a breach of contract claim. In turn, this could lead to the party filing for damages which are aimed at compensating them for the losses suffered as a result of the other party’s violation of the contract.
Feel free to contact our solicitors if you are also in a position where you need legal advice about a settlement agreement.
Sarah Wilkinson is an employment solicitor with over 20 years of experience in dispute resolution. Sarah also has extensive experience in breach of contract claims and injunctions. Sarah is a member of The Law Society, The SRA and the ELA. To contact Sarah, visit the Contact Us page. For media enquiries: info@dphlegal.com