Employers should tread carefully when negotiating settlement deals even where the employee has initiated the discussion as, until an employee signs a valid settlement agreement, the employee can bring a potentially costly claim. 

Settlement agreements inolve careful negotiation and  offers and counter offers to reach an agreeement. A settlement agreement is a legally binding document which settles any claims an employee has against an employer and pays a sum of money in return for settling and leaving employment.

To ensure your organisation interests are protected, it is important to be clear to keep the terms of the agreement confidential.

In the case of Gibbs v Leeds United Football Club, the High Court found that the Claimant, Mr Gibbs, had been constructively dismissed when he resigned in response to a demotion, even though he had been in negotiations over his exit.

Mr Gibbs was the Assistant Manager of Leeds United FC, working under a fixed term contract from April 2013 that expired on 30 June 2016. In June 2014, following the departure of the club’s manager, Mr Gibbs discussed with the club the possibility of him leaving if the next manager brought his own assistant manager, as well as the terms of a potential exit package.

Shortly after this, a new manager and assistant coach were appointed and Mr Gibbs was not provided with work, despite turning up to work as usual. He was later told that he was to work with the under 21s and 18s rather than the first team.

To ensure your organisation interests are protected, it is important to be clear to keep the terms of the agreement confidential.

He resigned in response, claiming he had been constructively dismissed. Mr Gibbs pursued his claim in the High Court, presumably because he did not have the necessary 2 years’ service to bring a claim of unfair dismissal and was seeking more than the Employment Tribunal is able to award for breach of contract claims (currently up to £25,000).

The High Court held that Mr Gibbs had been constructively dismissed – the actions of the club had been a repudiatory breach of contract which caused him to resign. The fact that Mr Gibbs had been willing to negotiate a termination package and had initiated this discussion did not prevent his claim for constructive dismissal as he remained willing to fulfil his contractual duties.

This case highlights the need for employers to tread carefully when negotiating settlement deals even where the employee has initiated the discussion as, until an employee signs a valid settlement agreement, the employee can bring a potentially costly claim.  In this case, as Mr Gibbs’ fixed term contract could not be ended earlier by the parties, he was entitled to the pay he would have received had he not been dismissed and was awarded an eye-watering £331,426.