Settlement agreements

A fundamental part, and indeed a statutory duty, of the Industrial Relations Officer’s ('IRO’s') within MIRS is to help conciliate disputes either before a formal complaint is made in the Employment and Equality Tribunal or after one has been made (or sometimes both), pursuant to our statutory duty under Section 104 of the Equality Act 2017.

Conciliation is often a misunderstood term, but essentially it involves IROs helping parties in dispute to find a mutually agreeable solution to their issues. It is a voluntary process and MIRS does not take sides; it remains impartial and is non-judgemental.

In practice, conciliation involves an IRO engaging with both parties, listening to each side of the dispute, and exploring possible solutions and outcomes. There is no time limit imposed by MIRS on conciliation discussions. Where a dispute may give rise to a complaint to the Tribunal, an IRO will advise the employee that conciliation discussions do not pause or extend the statutory time limits for submitting a complaint. Where a complaint and response have already been filed, the IRO will advise that Tribunal proceedings are paused to allow conciliation to be explored, unless or until a party chooses not to continue engaging in the process.

Where agreement is reached, this is often formalised through a confidential conciliated settlement agreement, which is signed by both parties.

Settlement agreements are frequently drafted by MIRS using one of its template agreements as a starting point. In other cases, an advocate or professional HR adviser may provide a draft agreement for use. It is important to note that the terms of any settlement agreement are those agreed between the parties themselves; the agreement belongs to the parties, not MIRS. Unless an externally drafted agreement specifically requires an IRO to act as a signatory to an adviser’s certificate, MIRS does not ordinarily sign settlement agreements.

An IRO will explain to an employee the legal effect of a settlement agreement, particularly how it impacts their rights to bring, or continue with, a complaint to the Tribunal. In essence, by accepting a binding something that is extra to the employees statutory/contractual entitlements (for example a payment or an agreed reference) the employee agrees, in return, to waive their rights to pursue or continue a Tribunal claim. This binding benefit (referred to in contract law as consideration) is often provided in the form of a termination payment. For the different tax treatment of a termination payment, please see the Income Tax Practice Note.

By virtue of section 164 of the Employment Act 2006, a settlement agreement cannot be legally binding as a means of contracting out of statutory employment rights unless it is brokered by MIRS under section 104 of the Equality Act 2017. As part of the advisory process, an IRO will also highlight the voluntary nature of settlement agreements and confirm that an employee is under no obligation to agree to one.

As part of its remit, MIRS will consider the circumstances of each case to ensure that employees receive any additional employment-related advice necessary to make an informed decision about whether to enter into a settlement agreement or to pursue a complaint through the Tribunal instead.

Once a settlement agreement has been signed by both parties, it becomes a legally binding contract, enforceable through the usual legal routes.

Settlement agreements are often entered into in the interests of saving time, maintaining confidentiality, and allowing the parties to control the outcome of a dispute between them.

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Manx Industrial Relations Service