Settlement Agreements – What you need to know

Settlement agreements can be suggested by either you or your employer. They are commonly used when there is a dispute between the parties, however, they can be used in other situations, for example when an employee has been made redundant or has decided to take voluntary redundancy.

What do they do?

By signing a settlement agreement, you will be waiving your rights to bring any claims against your employer arising out of or in connection with your employment or its termination. In exchange, your employer will normally make a payment to you for agreeing to waive your rights.

There is no obligation for you to accept a settlement agreement.  However, it is worth bearing in mind that if an offer is rejected, it may not lead to a better one. If you feel you have been badly treated, you may still be able to bring a claim despite turning down the settlement agreement.

If an agreement is not reached, then any negotiations between you and your employer will be ‘without prejudice’ and therefore cannot be referred to in any proceedings in the Employment Tribunal.

What will be covered in the agreement?

The agreement will normally settle all of the claims that you may be able to bring against your employer. It will also cover things such as the date your employment will terminate and the reason for your employment ending, as well as setting out the payments that you will receive and when you will receive them. You will normally receive payments for your notice, and accrued holidays as well as a termination payment, but agreements can also include payments for bonuses, commission or shares, and stocks.

The agreement will also contain a confidentiality clause that will prevent you from discussing the agreement except in certain specific circumstances, which will be detailed in the terms.

If not included in the first draft, it is a good idea to try and negotiate an agreed reference as part of the settlement agreement, to help you in your search for new employment.

What do I do if I receive a settlement agreement from my employer?

The ACAS Code of Practice on settlement agreements suggests that you should be given at least 10 calendar days to consider any offers of settlement, however, this can be more or less if agreed between the parties.

Given that settlement agreements are legally binding documents, you will need to take independent legal advice from a solicitor as soon as possible before signing the agreement, so that they can help you understand the terms that you are agreeing to and answer any questions that you may have.

Your legal adviser will also need to confirm to your employer that they have given you the advice on the terms and effect of the agreement. A properly drafted and negotiated settlement agreement can be a very effective way to ensure that you are adequately compensated for the termination of your employment, without the need to bring a formal claim against your employer.

How much does the legal service on Settlement Agreements cost?

As it is a requirement that you obtain legal advice before signing the settlement agreement, your employer will usually make a contribution towards the legal fees and it may not be necessary for your solicitor to ask you personally for any payment towards costs. 

However, in more complicated cases, where a solicitor is asked to carry out extensive negotiations to secure a better package for you, the solicitor may have to seek a higher contribution from your employer or where that is not possible, discuss any additional charges with you but always in advance.

If you have been given a settlement agreement and would like to discuss in more detail how we can support you, please call our employment law department on 0191 567 0465 or email: [email protected].

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