What do mutually agreed resignation schemes (MARS), voluntary redundancy processes and without prejudice discussions about termination have in common? They all tend to lead to employers proposing ‘settlement agreements’ as a way of ending a manager’s employment. Such agreements are commonplace and, usually, allow both sides to part on amicable terms.

Formerly known as ‘compromise agreements’, a settlement agreement is a legally binding contract setting out agreed terms for ending an employment relationship or resolving a dispute. In return for signing one and waiving some of their statutory rights, the employee receives a compensatory lump sum — usually be more than they would get if they went to court.

Confidentiality clauses and non-derogatory clauses (commonly called ‘gagging clauses’) are a common feature of settlement agreements. While there is nothing illegal about these clauses, some employers have become much more cautious about using them. NHS guidance dating from May 2024 urges employers to proactively consider whether a confidentiality clause is needed and, if it is, that it should be tailored to the specific case and should go no further than necessary.

A confidentiality clause must never be used to try to prevent someone from making permitted disclosures (‘whistleblowing’) and such clauses will be unenforceable. It’s also inappropriate to include confidentiality clauses in MARS agreements—the process should be open and transparent. Employers could find themselves subject to regulatory action (for example, a CQC well-led review) if they use settlement agreements inappropriately.

The NHS guidance also makes clear that these agreements are not a substitute for tackling poor performance or dealing with disciplinary matters, particularly any issues involving the quality and safety of patient services, or the care or wellbeing of staff.

While it’s usual to hold without prejudice discussions and agree the terms in principle, it’s only once a settlement agreement is signed by all parties and complies with the statutory requirements (see below), that the terms become legally enforceable. So it’s crucial that all agreed payments are specified within the agreement, together with any other details like retention of property, agreed references, recoupment of training costs or writing off of relocation expenses. Promises made verbally or by email are not enforceable unless confirmed within the terms of the signed settlement agreement.

This occurs when one party fails to fulfil their legal obligations as set out in the agreement. Common breaches and violations include:

Some agreements will include a specific clause on what happens in case of a breach. For example, the employee may have repay some or all of the agreed payment, depending on the extent of the breach. Any repayment must be a genuine estimate of the loss caused and not a financial penalty designed to deter a breach.

Another option is a breach of contract claim in the County or High Court. The usual remedy would be damages based on the actual loss caused by the breach, such as reputational harm or unpaid sums, for which evidence will be required.

Negotiations or mediation may be a better way to resolve the dispute in the first instance; for example, an agreement to remove a derogatory social media post coupled with a reminder of the obligations under the agreement. Payments due under the contract may also be withheld if, for example, the employee has breached the terms of the agreement.

Your MiP representative can provide invaluable support throughout the settlement agreement process, ensuring you fully understand your rights and the implications of signing the agreement. //