Employer's Perspective: What To Expect In A Settlement Agreement?

• Published date: 18 September 2023
• Subject Matter: Employment and HR, Contract of Employment, Employee Benefits & Compensation
• Law Firm: Appleby
• Author: Vaishali Damonaiko and Suhaylah Juman

What is a 'Settlement Agreement'?

One of the innovations of the Workers' Rights Act ('Act') is the concept of 'compromise agreement' (also referred to as a 'Settlement Agreement' in this article) ('Compromise Agreement').

Under the WRA, a Compromise Agreement may be entered into, by the employer and worker in order to resolve disputes concerning, amongst others,

1. the amount of compensation or other related payments, following the termination of employment, or
2. the amount of remuneration payable in the event of non-payment or short payment of remuneration.

A Settlement Agreement is often used where the employer is closing down or reducing its workforce and does not wish to go to the Industrial Court or the Redundancy Board for a resolution of the dispute.

WHEN IS A SETTLEMENT AGREEMENT LEGALLY VALID?

A Settlement Agreement is valid and binding when it has been examined by an independent adviser or where the worker has received independent legal advice prior to entering into the Settlement Agreement. In this regard, an independent adviser may be a qualified law practitioner or a member of the registered trade union or an officer of the Ministry of Labour, Human Resource Development and training.

FIRST STEP: NOTICE

Section 63 of the Act provides that the minimum notice period shall be 30 days which can be contractually extended. The employer must, at the time of notifying the worker, state the reason for termination of employment. The notice may be verbal or written.

The notice period will not apply where the employer summarily dismisses the worker on grounds of poor performance or misconduct under sections 64-66 of the Act, or where the worker has reached the retirement age.

PAYMENT IN LIEU OF NOTICE

Alternatively, the Act allows the terminating party to terminate employment with immediate effect by making a 'payment in lieu of notice' equivalent to the remuneration (which includes the basic salary and benefits) that the worker would have earned during the notice period.

SECOND STEP: INITIATING NEGOTIATIONS

Employers are encouraged to initiate negotiations with their workers in order to agree on the terms of termination and settlement amount. The confidentiality of these negotiations may be protected under the 'without prejudice' rule. In this regard, all communications, (i.e letters, emails, agreements) which bear the heading 'without prejudice', will not be admissible as evidence and cannot be disclosed in any court/other proceedings whether it is sought...