Settlement Agreement

A Settlement Agreement is a legally binding contract between an employer and employee and is usually used to terminate employment on mutually agreed terms. 

Unfortunately, sometimes things go wrong in the working relationship and often it is worthwhile considering the termination of employment by mutual agreement as an alternative to going through a stressful and time-consuming disciplinary, grievance or redundancy process with your employer. This contract is called a Settlement Agreement.

Under the terms of a Settlement Agreement, you will receive an enhanced financial package which will generally include a tax free termination payment, notice pay, holiday pay and any other sums due. In return, you agree to waive your rights to bring a claim against your employer, such as unfair dismissal, wrongful dismissal or discrimination.   

A Settlement Agreement offers the benefit of certainty and a clean break between an employer and employee. The employee will have the security of a financial package and often a standard, written reference for future employers.  The employer has the guarantee that it will not have to deal with any employment tribunal claims from the employee in the future. 

You are under no obligation to accept the terms of a Settlement Agreement and an employee is always required to seek independent legal advice on the terms and effect of the agreement before signing it. The agreement must be kept confidential between the parties.

You must seek independent legal advice on the terms of the Settlement Agreement and your employer will usually contribute to your legal costs in doing so. We are usually able to adjust our service to fit the employer’s contribution to fees but if the offer is not fair or the agreement requires negotiating then we can offer a variety of pricing options such as fixed fees, hourly rates and no-win no-fee arrangements. Please speak with our team further to discuss what funding options may be best for you.

How can we help you?

If you have been offered a Settlement Agreement, please contact our Employment Law Team who have extensive experience in advising on and negotiating Settlement Agreements on behalf of employees. We can turn around your Settlement Agreement within expected deadlines and usually within the legal costs contribution from your employer, unless extensive negotiation is necessary to improve your terms. We will always ensure the final agreement reflects the best possible outcome and settlement terms for you.

Please contact our team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.

Frequently Asked Questions

A Settlement Agreement is a legally binding, voluntary contract between an employer and an employee.

By signing a Settlement Agreement, you waive the right to bring a claim against your employer in the Employment Tribunal, in return for an enhanced payment.

A Settlement Agreement is usually used to terminate the employment relationship on mutually agreed terms. It can also be used where the employment is ongoing, but both parties want to settle a dispute that has arisen between them and bring the relationship to a quick end on agreed financial terms.

For the Settlement Agreement to be valid and legally binding, it must meet a number of statutory requirements, as follows:

• It must be in writing
• It must be signed by both the employer and the employee
• The employee must have received independent legal advice
• The legal adviser must be identified and insured and must sign an Adviser’s Certificate
• It must state that the applicable statutory regulatory conditions have been met

The Settlement Agreement should include a clause containing a clear breakdown of the payments to be made which may include:

- A ‘compensatory’ or ‘termination’ payment, for loss of employment.
- A payment in lieu of notice.
- A payment for accrued but untaken holiday up to the termination date.

There is no set scale of payments and the amount of any compensatory payment will depend upon the individual circumstances of your case and the potential claims you may have against your employer.

The terms of the Settlement Agreement will be set out in the written document which will identify the claims you are agreeing not to pursue in exchange for the enhanced package. The terms must include a clearly expressed waiver of the specific claims which you have or may potentially have against your employer.
Other terms which are commonly agreed as part of a Settlement Agreement include:
- An agreed reference for prospective employers;
- An agreed internal announcement to your colleagues in respect of your departure;
- Support from your employer to help you find another job, such as help with your CV and interviewing skills;
- Release from any post-termination restrictions in your employment contract that may prevent you working with competitors or customers in the future;
- A confidentiality clause around the terms of the Settlement Agreement;
- A warranty by both parties not to make any derogatory comments about the other party.

Most Settlement Agreements are intended to waive every possible type of claim you could bring against your employer in order to draw a line under everything that has happened during your employment.

If you are offered a Settlement Agreement, it is important to consider whether you have been unfairly dismissed or suffered detrimental treatment before you sign. We can then assess the strength of any potential claim, whether your case would be likely to succeed at a Tribunal and the likely compensation you would be awarded.

It is a legal requirement to receive independent legal advice on the terms and effect of a Settlement Agreement before signing it.

It is usual for your employer to make a contribution towards your legal fees in seeking advice on a Settlement Agreement. Depending on the complexity of the circumstances leading to the offer, and the terms within the Agreement, the employer’s contribution (generally around £500 plus VAT) is usually sufficient to cover our costs.

Your employer will only pay your legal fees if you enter into the Agreement. If, following our advice, you decide not to sign the Agreement, the legal fees will be payable by you.

If we need to enter into lengthy negotiations with your employer for any reason, and our fees increase accordingly, you will be responsible for paying any additional fees over and above your employer’s contribution. However, we will always seek to increase the contribution payable by your employer to limit the fees payable by you.

You are under no obligation to accept the offer from your employer. You are entitled to request a draft agreement in order to seek legal advice. The Settlement Agreement will only be legally binding once it has been signed by you, your employer and an independent legal adviser.

Employees should be given a reasonable amount of time to consider the proposed conditions of the Agreement. The recommended period is 10 calendar days unless the parties agree otherwise. If an employer puts undue pressure on an employee to sign a Settlement Agreement, this may be seen as improper behaviour, which may invalidate the terms of the Agreement.

Although you may initially be unwilling to sign a Settlement Agreement, particularly if it is unexpected, there can be advantages of doing so. Employment Tribunal proceedings can be expensive, lengthy and incredibly stressful. A realistic settlement package can often represent a good outcome and bring a degree of closure to a difficult situation.

If you have been offered a Settlement Agreement, we are able to arrange an appointment at your earliest convenience (either face-to-face, virtually or over the telephone) and guide you through the process as quickly and smoothly as possible.