Settlement Agreements

A settlement agreement is a legally binding contract between an employee and employer. An employer will typically offer an employee a settlement agreement upon the termination of their employment, as an alternative to resorting to an employment tribunal. Its purpose is to resolve any potential claims the employee may have by providing them with compensation, in return for which they waive their right to pursue legal action against the employer.

You do not have to sign the first agreement offered to you if you feel that the terms are unfair or unfavourable. It’s important to ensure you’re receiving an amount that will allow you to look for a suitable new job in a reasonable timeframe. Our settlement agreement solicitors can advise you on where to negotiate and ensure you get the best terms possible.

If you have been offered a settlement agreement from your employer, they should cover the cost of any legal advice. This will be stipulated in the agreement. As Setfords, our expert team of employment lawyers ensure that you receive 100% of your settlement and will never take a cut from the settlement itself.

Yes. A settlement agreement is a legally binding document, so you must get legal advice before you sign it. If you do not get legal advice, the document will not be legally binding, which can have repercussions for both you and your employer.

By signing the agreement, you agree to settle on all of the listed claims. In other words, you agree that you will not be able to take the employer to an employment tribunal, now or at any time in the future. So, a settlement agreement lawyer will be able to ensure that what you are signing is fair. For example, if they believe you may have a solid case at an employment tribunal that could allow you to receive a greater amount of compensation, they’ll be able to advise you as such.

There are plenty of benefits to taking a settlement agreement. Unless you are likely to be able to settle for a higher amount at an employment tribunal, the vast majority of people who are offered a settlement agreement choose to sign them, either with or without negotiation. Some of the benefits include:

• Certainty. By signing a settlement agreement, you’ll know exactly what you’ll receive and can move on with your life. On the other hand, you can never be 100% sure you will win and get the desired outcome with an employment tribunal.
• Speed. Settlement agreements can typically be completed quickly, while a tribunal can come with many delays, leaving you to wait longer for your payout.
• Stress. A settlement agreement allows you to put a stressful situation behind you and move on without a lengthy tribunal process.
• Legal costs. Legal costs for a settlement agreement will be covered by your employer. With a tribunal, there is no guarantee that you won’t have to pay legal fees, which can quickly add up.

The amount of tax and national insurance contributions you will pay on your settlement agreement depends on the value and terms. Generally, the first £30,000 of the main settlement is tax-free. However, a settlement agreement is typically made up of several different payments, some of which may be taxable. A settlement agreement lawyer will be able to advise you further.

A settlement agreement is a legally binding contract. As such, if either party breaches it (for example the employer fails to pay the agreed sum, or the employee brings about a tribunal even though the settlement agreement prevents them from doing so), a claim for breach of contract can be brought in the courts. 

Being offered a settlement agreement is not the same as a settlement agreement. Redundancy typically comes about because a business no longer requires a certain role. Or, changes in the business such as moving locations means that an employee can’t work there anymore.

Employers must go through a lengthy process to make someone redundant. So, they may offer a settlement agreement in its place, even if there is a low chance of the employee taking them to an employment tribunal. This is usually a win-win situation, with both parties able to walk away without having to go through a stressful redundancy process. However, you must still consult with a solicitor specialising in employment law to ensure you’re getting a fair offer.

The terms of the agreement can vary depending on the employer and the circumstances. Typically, a settlement agreement will lay out the sum of money the employer will pay you, in exchange for giving up your right to take them to an employment tribunal or make an independent legal claim against your employer.

The terms of the agreement may also include things like:

• Restrictive covenants, which set out any restrictions on your future wor for a set period of time. For example, you are not allowed to approach clients of the company.
• A confidentiality clause, meaning you must keep certain information confidential 

It’s important to carefully consider whether the terms of the agreement are fair, which a solicitor specialising in settlement agreements will be able to assist you with.