Settlement Agreements

Has your employer offered you a settlement agreement? Deciding whether to accept can be overwhelming.

What is a Settlement Agreement?

Settlement agreements are usually offered to employee’s when they are being made redundant or to resolve a workplace dispute by ending the employment relationship with agreed terms and conditions.

Typically an employer will make various payments to an employee in return for them agreeing not to pursue such claims and, again, this obligation is legally binding upon the employer.

The terms of Settlement Agreements tend to be quite uniform and typically include:

• A provision that the employer will make payment of salary, including accrued but untaken holidays, up to the date of termination of employment

• Payment in lieu of the employee’s notice period if the employee is not required to work his or her notice. Care has to be taken in determining whether this particular payment should be subject to tax and legal advice should always be sought in relation to this issue

• Payment of compensation for loss of employment. This payment should be distinguished from a payment in lieu of notice and can often attract tax free status provided the payment is less than £30,000

• There is usually provision that an employee shall indemnify the employer in respect of any liability for tax in respect of payments arising under the agreement

• An employer will usually require an employee to enter into a confidentiality obligation whereby the employee agrees not to disclose the terms of the agreement to other employees or third parties

• Similarly, an employer will usually require an employee to agree not to make any disparaging or derogatory statements about their employer, their managers or fellow employees

• An employer may require an employee to enter into restrictive covenants concerning the solicitation of clients, customers, suppliers or employees

• An employee will also usually be required to enter into an obligation that they will not disclose or misuse confidential information belonging to the employer

• The employee will be required to waive their right to pursue specific claims in the Employment Tribunal and the Civil Courts

• An employee may be required to provide a warranty that they do not have an existing job offer or are in discussions with an employer with a reasonable expectation of receiving such an offer

• Likewise an employee may be required to warrant that they have not committed any act of gross misconduct

• It is not unusual for a Compromise Agreement to include a clause that an employee will be provided with a reference,

A settlement agreement can be required when you and your employer are in a disagreement over employment or redundancy. In this case, your boss may come to you with a settlement agreement – to take you out of the company and also to avoid any legal action at the same time.

It’s a legally binding contract between you and your employer so it must comply with the Employment Legislation otherwise it can be unenforceable.





What to do if you receive a Settlement Agreement

Get professional advice

It’s very important that if you receive a settlement agreement you get thorough and proper advice from a qualified professional. Ensure that you choose an expert who has experience in advising on settlement agreements to make sure you get the best possible terms.

It is important to note that payments made under a settlement agreement may be subject to tax and NI payments,



How we can help

We will always discuss the circumstances surrounding the offer of a settlement agreement from your employer.

Once we have provided you with specific advice relating to your settlement, you will then have the option to accept the agreement as it is or request that the employer makes certain changes.

The agreement must only be completed once the employee understands and accepts the terms and conditions imposed in the document.

Am I eligible for a Settlement Agreement?

Anyone can receive a settlement agreement. They can be very straightforward or very complicated and may involve a number of issues including confidentiality issues, tax indemnities or restrictive covenants – but don’t worry, we’re here to guide you and ensure you fully understand all aspects of the agreement.


Our team of in-house experts can ensure the agreement is drafted correctly after analysing the terms and the compliance in line with UK legislation. Our experts will be on hand to advise you in order to get the very best outcome.

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