While settlement agreements are traditionally proposed at the termination of employment to ensure clean break separations, they can also resolve workplace disputes at any point during the employment relationship.

Common settlement agreement situations include:

1. Unpaid Wages Disputes

A frequent reason for settlement agreements involves disputes over unpaid wages. Examples include missing overtime payments, undelivered bonuses, or delayed standard paychecks that could lead to legal disputes.

In these cases, the financial settlement focuses on the employer paying compensation for loss to the employee. This may not necessarily end the employment relationship, though the experience may strain future working relationships and require legal advice.

2. Wrongful Dismissal and Unfair Dismissal Claims

When employees believe they experienced unfair dismissal or wrongful termination, either party can propose settlement agreements to avoid unfair dismissal claims at an employment tribunal.

Settlement agreements often appeal to both parties because they resolve legal disputes quickly and cost-effectively compared to employment tribunal proceedings or lengthy legal battles with employment lawyers.

3. Redundancy Appeals and Collective Redundancies

When employee positions become redundant, employers may offer settlement agreements to streamline redundancy procedures and avoid lengthy collective redundancies processes. Since redundant employees haven't committed performance failures, employers often enhance settlement terms.

To ease the transition, employers typically include higher compensation payment amounts in settlement agreements or provide job placement services to help employees secure alternative employment.

4. Unfair Treatment, Misconduct, or Discrimination

When employees experience unfair treatment, misconduct, or discrimination from managers, supervisors, or leadership teams, they may threaten legal action or request employment tribunal claims.

Settlement agreements provide alternatives to legal disputes, enabling swift issue resolution. Companies may also offer settlement agreements to non-employees, such as job applicants who believe they faced discriminatory hiring practices and might pursue a tribunal claim.

In such cases, employers may propose settlement agreements to avoid legal representation costs and potential reputation damage from future disputes.

5. Protecting Company Reputation and Confidentiality

When employers face disputes involving harassment, discrimination, or misconduct, their reputation is at stake. Settlement agreements often include confidentiality clauses and confidentiality provisions prohibiting employees from publicly discussing matters or disparaging the company.

These confidentiality agreement elements help maintain the agreement confidential and prevent future disputes while protecting both parties' interests.

6. Ending Employment Relationships Due to Poor Performance

When employees who have passed probationary periods are no longer suitable due to poor performance, skill gaps, or cultural misalignment, settlement agreements can end working relationships cleanly while avoiding constructive dismissal or unfair dismissal claims.

Although this represents a difficult situation to navigate, employers can include positive reference letters as part of settlement agreements to improve situations and help employees find better-suited positions with future employers.

7. When Alternative Dispute Resolution Fails

Settlement agreements shouldn't be first-choice dispute resolution tools. HR and legal professionals should first attempt resolution through mediation, discussion, and disciplinary action, following proper procedures before pursuing settlement agreements when other approaches prove unsuccessful.