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What Is A Settlement Agreement? Frequently Asked Questions

How much will a Settlement Agreement cost me?

Your employer will usually pay your legal costs for a Settlement Agreement, although your employer may set a limit so we will endeavour not to charge more than your employer has agreed to pay.

We also offer a free initial consultation so it will cost you nothing to find out where you stand and how we can help you with a Settlement Agreement. All discussions are in confidence and we will negotiate with your employer on your behalf.

I'm being made redundant and my employer has asked me to sign a Settlement Agreement, why should I?

More employers are using Settlement Agreements (formerly Compromise Agreements) when making employees redundant. Settlement Agreements protect the employer against the employees making employment tribunal claims for unfair redundancy procedures.

However, there are advantages for employees in signing a Settlement Agreement when being made redundant:-

  • Certainty of a settlement sum,
  • Terms agreeable to employee and employer,
  • Confidentiality about the terms of the redundancy package,
  • Ensures references given to future employers will be given with agreed wording,
  • Your employer will pay for legal advice you require before signing the agreement so you can be confident your settlement package is fair and the terms of the Settlement Agreement are fair to you at no cost to yourself. 

If you've been asked to sign a Settlement agreement, please contact us.

What if I’m not happy with the terms of the Settlement Agreement?

Once a Settlement Agreement is signed by all parties, it is a binding agreement in full and final settlement so cannot be re-negotiated.  If you are unsure about or not happy with any terms in the Settlement Agreement, you should seek legal advice.

You do not have to sign a Settlement Agreement.  We will advise you whether the Settlement Agreement is fair and what you are entitled to when your employer ends your contract of employment.  We can also advise if you have a claim for unfair dismissal and whether you are likely to succeed if you make an employment tribunal claim.  If you do not sign the Settlement Agreement, you would maintain your right to pursue an employment tribunal claim.

What Terms will be in a Settlement Agreement?

Each Settlement Agreement has slightly different clauses.  A typical agreement would have:-

  • A breakdown of the payments you will receive when your employment contract ends and which sums will be free of tax.
  • Confidentiality clauses relating to your employment, confidential information you have been party to during your employment and also confidentiality about the terms of the Settlement Agreement.
  • You will usually be required not to make negative comments about your employer and your employer may agree not to make negative comments about your employment with them.
  • Restrictive Covenants – these are clauses that may stop you approaching previous clients on behalf of a new employer or stop you approaching your current employer’s staff.  If you have restrictive covenants in your current employment contract, these will be repeated in the Settlement Agreement.  However, new restrictive covenants may be added so you will need legal advice to ensure you are not hampered from new employment or starting up your own business, depending on your plans.
  • References – you can agree what any future references will say
  • The Settlement Agreement will contain a list of statutes under which you will agree not to bring a claim.  These will include the Employment Rights Acts, Discrimination Acts, etc.  An employer needs to list these.

If you are unsure of or have any queries regarding terms in a Settlement Agreement, contact us to discuss the specific terms.

Why do I need a Settlement Agreement?

The benefit to you of a Settlement Agreement is that you have a legal document setting out how much compensation your employer will pay you.  It is quicker than pursuing a claim in an Employment Tribunal where there is always a risk you might not be successful.

The other advantage of the Settlement Agreement is that it may contain clauses regarding giving references for you on request and what the reference will say. This gives you peace of mind that any future employers will receive a reference from your current employer that will not contain anything negative.

Why do I need a Solicitor to sign a Settlement Agreement?

According to the Employment Rights (Dispute Resolution) Act 1998, advice regarding Settlement Agreements can only be given by a qualified lawyer, a qualified trade union official or a qualified advice centre worker, all of whom have to be covered by an appropriate certificate of indemnity insurance. 

A solicitor will have indemnity insurance and will be able to advise you if the terms of the Settlement Agreement are right for you and whether the amount of compensation being offered is fair. Settlement Agreements can be packed with legal jargon and refer to Acts and Regulations so it is vital you understand the full implications of what you are being asked to sign.

Lawson-West solicitors have a client charter promising to communicate with you in a jargon-free way.  We can advise and negotiate any terms that may be unfavourable to you.