Employment Settlement Agreements

As one of the UK's larger and fastest growing law firms, we have specialist employment lawyers based in over 25 locations throughout England & Wales including 10 offices in London.

We are highly experienced in advising on settlement agreements and negotiating the terms with employers, backed up by fast turnaround and high quality legal advice.

Our fees will typically be covered in full by the employer, so you will rarely pay us anything. We are available to review a settlement agreement for you very quickly, so please do get in contact.

What is a Settlement Agreement?

A settlement agreement (also sometimes referred to as a severance agreement) is a legally binding contract which records the terms and conditions of an employee's departure from a business.

When agreeing to sign a settlement agreement, the employee contracts out of making almost all claims he or she may have or had against the employer. In return, the employer will generally offer the employee a compensatory amount, which varies but is typically around the equivalent of 3 months salary, in addition to contractual and statutory entitlements, as an inducement to sign.

Employers offer employees a settlement agreement for a number of reasons. Sometimes they are used instead of a formal redundancy process, or to avoid a claim or dispute dragging on or perhaps where an employee is on long term sickness absence or a grievance has been raised. Employees can never be forced to sign an agreement and should carefully consider whether the compensatory amount offered is worth accepting bearing in mind many factors, not least future work prospects.

A settlement agreement prohibits an employee from pursuing a claim in a court or an employment tribunal claim against their employer. These matters are specifically covered by the agreement. Settlement agreements are a useful way of bringing an employment relationship to an end in a mutually agreed way.

An employee must receive independent legal advice from a relevant independent advisor for a settlement agreement to be valid.

For a settlement agreement to be legally binding the employee must receive independent legal advice on it.

Part of the settlement agreement typically includes:

• payment to the employee of any outstanding salary and holiday pay (subject to tax deductions);

• the employer making an ex-gratia payment to the employee. This is a payment made by an employer where there is no contractual obligation to do so (taxed as a termination award under sections 402A(1) and 403 of ITEPA. The first £30,000 of such payments is exempt from tax and any excess will be subject to income tax);

• waiver of claims against the employer by the employee; and

• an agreed reference.