Settlement agreements are valuable tools for resolving work-related disputes, often used to end an employee’s time with a company or to avoid a costly tribunal hearing. They offer a structured way to reach an amicable resolution between an employer and employee, laying out clear terms that both parties must follow.
You might assume that once both parties have signed, everything runs smoothly. However, breaches of settlement agreements do occur, and when they do, they can create significant challenges. Whether it’s an employer failing to make agreed payments or an employee breaching confidentiality clauses, the consequences of a breach can be serious.
In this article, we’ll explore what happens when a settlement agreement is breached, what remedies are available, and how you can protect your interests if a dispute arises.
What is a settlement agreement in employment?
A settlement agreement is a legal contract that is designed to waive an employee’s right to make a claim against their employer in return for financial compensation. The document will likely also contain clauses such as non-disclosure and non-solicitation which the individual has to abide by.
Because the process involves a worker giving up their statutory rights, the employee must speak to an employment law solicitor to ensure they fully understand what’s expected of them and that they’re happy to proceed. Once this has been done, the contract becomes legally-binding. Therefore, if there is a breach of the settlement agreement, it’s important to understand what options you have at your disposal.
Common ways to breach a settlement agreement
There are several ways in which a party can breach a settlement agreement. These range from the employer not providing all of the required funding, to the employee reneging on their promise not to bring an employment tribunal claim. For a breach to be enforced, the aggrieved party must prove that a ‘material term’ in the contract has been broken.
In employment law, a material term is something that would have a considerable impact on the non-breaching party if the other side fails to do what they’re supposed to. Examples of these include:
- Breach of confidentiality
- Solicitation of the company’s clients
- Non-payment of required funds
- Breach of post termination restrictions
- Failing to pay monies on schedule
- Making disparaging comments about the employer
- Breach of employment contract
There’s no specific definition in case law about what constitutes a material breach of a settlement agreement. Instead, it is judged on the individual circumstances of each dispute. However, it’s a good idea to speak to a specialist employment solicitor so they can advise you on your chances of success — allowing you to make a more informed decision about whether or not to pursue the matter.
What happens if a settlement agreement is breached?
What happens if a settlement agreement is breached depends largely on which party goes against the terms of the contract. An employer, for example, could try to recoup funds that have already been paid out to the worker. Meanwhile, an employee may decide to make a claim against the business for further damages.
Here’s an explanation of what happens if a settlement agreement is breached in a bit more detail:
Breach of settlement agreement by employer
If it’s believed that the employer has carried out a breach of the settlement agreement, the employee can start a claim for non-adherence to the contract. This is done via an employment tribunal, which can be extremely costly, time-consuming, and damaging for a business.
For an employee to successfully make a breach of contract claim, they must be able to prove the following:
- There was a legally-binding contract with the employer
- The employer did not fulfil the enclosed terms
- Losses were incurred as a result of the breach
This is something that can be clarified with the assistance of a specialist employment law solicitor.
Breach of settlement agreement by employee
Should a business think the employee has breached the settlement agreement, the company will first need to send them a letter to highlight the suspected offence. This should be supported by as much evidence as possible. The individual then needs to be given a sufficient amount of time (usually around 14 days) to respond.
Once this has passed, the company may be able to recover any money that has already been paid to the individual prior to the breach, while also applying for an injunction to prevent further occurrences from taking place. This is usually carried out via a small claims court.
Are parties still bound by the settlement agreement?
If payments have already been made to the employee, the business can apply to have these returned — and will not be obliged to give them any more money — even if it had been stipulated in the original agreement. Both parties would still be bound by the remainder of the contract, meaning the worker is not able to file for an employment tribunal claim.
In cases where no money has changed hands, the employer can bring the contract to an end, which means that neither party would be bound by it.
Potential damages for breach of settlement agreements
Either party is able to claim damages for a breach of the settlement agreement. A business can attempt to recoup any funds it has already sent to the individual as part of the agreement. Employees, meanwhile, can seek compensation for any losses incurred as a result of their former employers breaking the contract.
It’s important to note, however, that monies issued to an employee that are related to a statutory right — such as redundancy payments — cannot be reclaimed.
Specialist settlement agreement advice
If you believe that your employer or employee has breached the terms of your settlement agreement, you should act quickly and seek expert legal representation. A breach can expose you to financial losses, reputational damage, or further disputes, so having a proactive legal team in your corner is essential.
We offer tenacious, results-driven support to ensure your interests are vigorously defended. Whether it’s unpaid compensation, confidentiality breaches, or non-compliance with agreed terms, our employment law professionals work tirelessly to ensure any breach is swiftly addressed, providing tailored legal strategies designed to achieve the best possible outcome for you.
For employees, we’ll guide you through your rights and help enforce the agreement's terms, ensuring you receive the compensation and protections outlined in the contract. For employers, we ensure that your business is protected from potential claims while upholding your legal obligations. If necessary, we’re fully equipped to represent you in negotiations or take the matter to an employment tribunal.
With our dedicated and experienced full-service team, you can move forward confidently, knowing your interests are in expert hands. Contact us today to find out how we can help protect your rights and resolve your settlement agreement dispute.