What happens if a settlement agreement is breached?

Settlement agreements serve as vital tools for resolving disputes, typically between employers and employees in the UK. They provide a structured way to resolve disagreements without resorting to lengthy, costly litigation. However, the effectiveness of these agreements hinges on both parties adhering to their terms. When one party fails to uphold their end of the bargain, it can lead to significant complications.

We look at the implications of a settlement agreement breach, the potential consequences, and the legal avenues available to the aggrieved party.

Understanding settlement agreements

A settlement agreement is a legally binding contract that outlines the terms under which a dispute is resolved. Typically, these agreements are employed in employment contexts, particularly during termination scenarios. In exchange for a financial settlement and possibly other benefits, such as a positive reference, the employee agrees to relinquish their right to pursue specific legal claims against the employer.

For a settlement agreement to be enforceable, it must meet certain statutory criteria. These include being documented in writing, addressing a specific grievance, and ensuring the employee has received independent legal advice on the implications of the agreement. This legal framework is designed to protect the rights of the employee and ensure they are not coerced into signing.

What constitutes a breach of a settlement agreement?

A breach occurs when either party fails to comply with the terms of the settlement agreement. Breaches can range from minor infractions to significant violations that undermine the entire agreement.

Common breaches by employers

1. Failure to pay: One of the most straightforward breaches is when an employer does not pay the agreed settlement amount, either partially or in full.

2. Negative references: If the settlement agreement stipulates a specific wording for a reference, any deviation from this can be deemed a breach.

3. Non-compliance with other terms: This may include failing to provide agreed benefits or not adhering to confidentiality clauses.

Common breaches by employees

1. Confidentiality violations: Many agreements contain clauses that prevent employees from disclosing the terms or circumstances surrounding the settlement. Breaching this can have serious repercussions.
2. Disparagement: Employees may be prohibited from making negative comments about the employer or its operations, and violating this clause can lead to legal action.
3. Pursuing waived claims: If an employee attempts to bring forth claims that were explicitly waived in the agreement, this constitutes a breach.

Consequences of a breach

When a settlement agreement is breached, the repercussions can be severe for both parties involved. Understanding these consequences is crucial for anyone entering into such agreements.

For employers

If an employer breaches the agreement, the employee has several potential recourses:

• Breach of contract claim: The employee may file a claim in civil courts to recover any unpaid amounts or losses incurred due to the breach.
• Repudiatory breach: If the breach is deemed serious enough, it may allow the employee to terminate the agreement and revive any original claims that were settled, exposing the employer to further litigation.

For employees

Conversely, if an employee breaches the agreement, they may face significant consequences:

• Legal action from the employer: The employer can pursue a breach of contract claim to recover losses resulting from the employee's actions.
• Repayment clauses: Many agreements include clauses requiring the employee to repay all or part of the settlement amount if they breach specific terms. However, these clauses must be reasonable and not punitive to be enforceable.
• Indemnity clauses: Employees may also be required to indemnify the employer for any losses incurred due to their breach, which can lead to financial liability.

Enforcing a settlement agreement

1. Documenting the breach: The first step is to gather evidence of the breach. This may include emails, letters, or any other communications that substantiate the claim.
2. Issuing a formal notice: A formal notice should be issued to the breaching party, clearly outlining the nature of the breach and referencing the relevant clauses of the agreement. This notice serves as a precursor to any legal action.
3. Allowing a response period: It is advisable to provide the breaching party with a reasonable timeframe to respond or rectify the breach. This period is often around 14 days.
4. Considering negotiation: Before escalating to legal proceedings, both parties may benefit from attempting to negotiate a resolution. This can save time and resources compared to litigation.
5. Initial legal proceedings: If the breach remains unresolved, the aggrieved party may need to pursue legal action through the appropriate tribunal or court.

Legal remedies for breach of settlement agreements

When a breach occurs, the wronged party has several legal remedies available to them. These remedies aim to restore the injured party to the position they would have been in had the agreement been honoured.

Damages

The most common remedy is the award of damages, which compensates the innocent party for losses incurred due to the breach. For employees, this often means recovering unpaid settlement sums, while employers may seek compensation for reputational damage or other losses.

Specific performance

In some cases, a court may order specific performance, compelling the breaching party to fulfil their obligations under the agreement. This remedy is less common and typically reserved for situations where damages would not suffice.

Injunctions

An injunction may be sought to prevent further breaches, such as stopping an employee from disclosing confidential information or making disparaging remarks.

Termination of the Agreement

In instances of serious breaches, the innocent party may have the right to terminate the agreement, potentially reviving any original claims that were settled.

Conclusion

Settlement agreements are invaluable for resolving disputes efficiently and amicably. However, the success of these agreements relies heavily on both parties honouring their commitments. A breach can lead to significant legal and financial consequences, underscoring the importance of understanding the terms and implications of such agreements.

If you suspect that a breach has occurred, seeking legal advice promptly is essential. An experienced solicitor can guide you through the complexities of enforcing your rights and navigating the legal landscape surrounding settlement agreements. By understanding the potential ramifications and available remedies, you can better protect your interests and ensure that the terms of your settlement agreement are upheld.

For further information and trusted legal advice regarding settlement agreements, get in touch with us at Carlsons Solicitors.