5 Reasons settlement agreements can be a good idea

This column was originally published on Jeff Neal’s blog, ChiefHRO.com, and was republished here with permission from the author.

Settlement agreements are a contentious subject in debates about employee accountability. In fact, one of the president’s recent executive orders specifically prohibits some of the most common practices in settlement agreements. Section 5 of the Executive Order “Promoting accountability and streamlining removal procedures consistent with Merit System Principles” says:

“Ensuring integrity of personnel files. Agencies shall not agree to erase, remove, alter or withhold from another agency any information about a civilian employee’s performance or conduct in that employee’s official personnel records, including an employee’s Official Personnel Folder and Employee Performance File, as part of, or as a condition to, resolving a formal or informal complaint by the employee or settling an administrative challenge to an adverse personnel action.”

That provision was not among those that were recently enjoined by a federal judge, so agencies must implement it.

So — why would an agency enter into a settlement agreement? Here are five reasons why settlement agreements may make sense.

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  1. They have a weak case. There are times when an agency wants to remove an employee for what the agency believes is good cause, but their case is weak. The weakness in the case could be a lack of hard evidence to back up a charge, or something even more common — like bad witnesses. There are times when the person you need to put on the stand is just not that credible or effective. There are also cases where witnesses have to be compelled to testify and are, at best, hostile. Rather than risk losing before a third party (such as the Merit Systems Protection Board, Equal Employment Opportunity Commission or an arbitrator), the agency eliminates the risk of losing and signs a settlement agreement. Settlements in such cases almost always include a “clean record” provision that requires the agency to remove references to the case from the employee’s Official Personnel Folder (and will be prohibited by the executive order). When agencies weigh the risk of losing a case and retaining someone they believe should be gone, or settling with a clean record, they typically choose the settlement. Even when the agency has a strong case, they may be concerned about having even a small chance of losing, which leads to the next reason to settle.
  2. Zero risk of losing. There are cases where the agency does not want to have even the slightest chance of losing and having to bring an employee back. A settlement agreement is the one absolute certainty. They can reach an agreement with the employee to go away and never return. In fact, it is common for settlement agreements to include provisions that bar the employee from applying for jobs in the agency in the future. One problem is that some cases agencies never want to lose are also cases where they should never settle. More about that will be in my next post.
  3. An employee is not a “bad” employee, but rather just a bad fit for the job. We have all seen situations where someone gets into a job that is a terrible fit. An employee with an otherwise good record accepts a job where he or she simply does not fit the duties because of skills, temperament or other factors. It could also be a case where an employee with an otherwise exemplary record had one instance of severe misconduct. In those cases, it is not uncommon to see settlement agreements that allow the employee to leave with a clean record. There is no harm to the employee or the agency and the employee is not tainted by something that either was not a deliberate act or is something unlikely to be repeated.
  4. The agency wants the case kept quiet. There are situations where agency leadership believes the details of a case are best kept off the record. In those cases, a settlement agreement with the employee almost always includes a nondisclosure provision that keeps either party from discussing the matter. Reasons for wanting a case kept quiet vary, but they are not at all uncommon. Unfortunately, some of those reasons are also in my list of cases where you should never settle.
  5. To reduce cost. Removal cases can get expensive. An agency runs the risk of spending a lot of money to defend a case, and even more if there is a decision from a third party that results in punitive damages. Most removal cases that are reversed include back pay. If an agency has someone off the books for a year or more and then has to bring them back and make them whole, the cost can be high. In addition to the financial cost, there is damage to the agency’s credibility with its workforce or stakeholders when it is unable to deal with a problem employee.

This list is not exhaustive. These and others are reasons why settlement agreements are a useful tool in the employee relations toolbox. They can resolve problems without unnecessary risk, and can help transition employees out of jobs that are a bad fit. They can bring closure to a case quickly and quietly. They are also overused, and are there are at least three reasons why settlements can be a very bad idea. My next post will address those reasons to avoid settling cases, and include some recommendations on proper use of settlements.

Jeff Neal is a senior vice president for ICF and founder of the blog, ChiefHRO.com. Before coming to ICF, Neal was the chief human capital officer at the Homeland Security Department and the chief human resources officer at the Defense Logistics Agency.