How A Business Settlement Contract Can Help To Protect Your Business

Posted on: 31 August 2016


One of the most problematic and stressful things you will have to do as a small business owner is to dismiss a member of your staff.  It's traumatic for both parties, and can sometimes result in your business being subject to a law suit for unfair dismissal.  But how can you safeguard your business against disgruntled employees whose services you wish to dispense with?  Read on for more information.

Business settlement contracts

It's essential that you as an employer put contracts of employment in place for each member of your staff when you take them on as permanent employees.  However, you should also consider asking key employees to sign business settlement contracts too.  A business settlement contract, drawn up by a professional business attorney, can effectively prevent employees from attempting to sue your business for unfair dismissal.  

Dismissal procedures

However, you must also follow the correct dismissal procedures fairly and competently.  This will mean you are more likely to successfully defend a tribunal case should the need arise.  Your Company Procedures Manual must contain clear and precise details of the procedure which will be required in the event of disciplinary procedure and subsequent dismissal. 

If you neglect to follow these procedures to the letter, you may find yourself paying compensation to the employee who will undoubtedly win an unfair dismissal tribunal.

There are five reasons deemed to be 'fair' reasons for dismissal of a member of your staff.

  1. Where an employee's behaviour is seriously unacceptable.
  2. Where the employee is no longer capable of carrying out their prescribed duties.
  3. Legal reasons; for example, if a person is employed as a driver and they were to lose their license.
  4. Where insufficient work means that redundancy is justified.
  5. The 'catch-all' reason.  This may be used where some other substantial reason justifies dismissal, but you must show that the reason was 'substantial'.

The correct dismissal process

First of all, you must notify the employee straight away in writing of your dissatisfaction, as per step one of the standard disciplinary procedure.  You should then arrange a meeting with the employee.  At this meeting you should discuss the problem in detail with them and try to sort out the best way of addressing and improving the situation. This forms step two of the standard procedure.

Prior to the meeting, give consideration to whether or not the matter can be resolved informally, perhaps through extra training or closer supervision, for example.  Explain to the staff member what improvements you will expect to see; set out timescales and agree dates upon which their performance will be reviewed.

If it's not possible to take informal action, you will have to invoke a more formal procedure.  This will usually start with a formal writing first warning and will escalate to a final written warning.  At this stage you must inform the employee that they have a right to appeal.

Written warnings must set out the problem in detail and should explain the changes and improvements you expect to see together with the consequences to the employee should they fail to meet them.  Following each written warning, you must meet with the employee to allow them an opportunity to state their case.  Written warnings are usually disregarded without further action following an agreed period and the necessary improvements from the employee.

Should the employee request an appeal, you must arrange a meeting for this purpose and inform them of your decision.

If, after all these stages have been followed the employee still fails to demonstrate sufficient improvement, you might decide that dismissal or an alternative role is the only option.  You must give the correct period of notice and follow the standard three step procedure: give reasons for dismissal in writing, meet with the employee and allow them the opportunity to appeal against your decision.

In conclusion

You can help to protect your business from claims for unfair dismissal by asking your employees to sign a business settlement contract.  For more advice and information, have a chat with a good business attorney.