Employment Settlement Agreements: What You Need to Know Before Signing
If you’ve been offered a settlement agreement by your employer, it is completely normal to feel a little unsure about what it means and whether you should sign it. Settlement agreements can be a practical and mutually beneficial way to end an employment relationship, but it is essential to fully understand your rights and obligations before you commit.
We have set out below an explain of what a settlement agreement is, what it typically includes and the key points you should consider prior to signing.
What is a settlement agreement and what does it include?
A settlement agreement is a legally binding contract between an employer and employee. It usually involves the employee agreeing not to pursue any legal claims against the employer, in exchange for a financial payment and possibly other benefits.
These agreements are often used in redundancy situations, workplace disputes or when both parties agree to part ways without going through a formal dismissal or tribunal process.
While each agreement is tailored to the individual circumstances, a typical settlement agreement will include:
The settlement payment
This may include notice pay, a tax-free ex gratia sum and any outstanding holiday pay.
Termination date
The agreed date your employment will end.
Waiver of claims
A list of claims you agree not to bring against your employer (e.g., unfair dismissal, discrimination).
Confidentiality clauses
Obligations not to disclose the terms of the agreement or make disparaging comments.
Reference
In some cases, a standard reference letter may be attached or agreed in principle.
Return of property and handover
Provisions relating to the return of company equipment or completion of tasks.
Frequently asked questions
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Do you have to sign a settlement agreement?
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No. You’re under no obligation to sign a settlement agreement. If the terms are not acceptable, you can negotiate or decline it. However, once signed, the agreement is binding and you generally won’t be able to bring a claim to an employment tribunal about issues covered by the agreement.
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When should you get legal advice?
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Always. For a settlement agreement to be legally valid, you must receive independent legal advice from a solicitor. Your employer will usually cover the cost of this advice (up to a reasonable limit which will be specified in the draft agreement). Your solicitor will:
- check that the agreement is fair and lawful;
- explain the legal implications of the terms; and
- help you negotiate improved terms, if appropriate.
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Can you negotiate a better deal?
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Yes, and in many cases, you should. Depending on your situation, you may be able to negotiate:
- a higher settlement payment;
- an agreed reference;
- early release from garden leave; and
- waiver or revision of post-termination restrictions (e.g., non-compete clauses).
Key things to consider before signing
- Is the settlement sum fair and does it reflect your notice, holiday pay and potential claims?
- Are there any clawback provisions?
- Have you received a written breakdown of all payments?
- Are you happy with the reference and confidentiality clauses?
- Have you been given enough time to review the offer? (You should be given at least 10 calendar days, according to ACAS guidance.)
Settlement agreements can offer a clean and amicable break from your employer, often with a financial cushion. But it is vital to understand exactly what you are agreeing to before signing. By obtaining appropriate legal advice, you can ensure your interests are protected and that you walk away with the best possible outcome.
How we can help
If you’ve received a settlement agreement or are considering one, our team is here to help. We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT to £350 plus VAT* depending on the complexity of the issues and seniority of the fee earner).
Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.
* VAT is charged at 20%
This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.