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What should I do if my employer has offered me a Settlement Agreement?

wooden letters spelling the word settlement

Friday, June 23, 2023

You may have been presented with a Settlement Agreement either prior to your employment coming to an end, or sometimes afterwards. It may be that the professional relationship with your employer has broken down and it has been mutually agreed that it is time to part ways, or it may be entirely unexpected. The first thing to do is to understand what a Settlement Agreement is, and what you can expect to find within this.

What is a Settlement Agreement?

In essence, a Settlement Agreement is a legally binding contract between the employer and employee whereby the terms of the employment termination are summarised. Within a Settlement Agreement you can expect to find common provisions such as:

  • the date on which your employment will come to an end;
  • if you will be expected to work your notice period, or if you will be paid in lieu of your notice period instead;
  • if you are entitled to payment in lieu of any holidays you have accrued;
  • if you will be receiving a financial sum by way of compensation for entering into the Settlement Agreement, and the relevant tax implications;
  • the potential claims to be settled by the Settlement Agreement;
  • whether your employer will cover fees for you to receive independent legal advice on the Settlement Agreement, and the level of these fees, which will generally be up to a certain sum;
  • an agreed reference;
  • provisions relating to confidentiality of the agreement and prohibition of derogatory statements.

The above is not an exhaustive list. It is simply examples of typical provisions you can expect to see in a Settlement Agreement.

Do I have to accept the proposals of the Settlement Agreement?

The immediate question which will likely spring to mind on receipt of a Settlement Agreement is ‘do I have to agree?’. The simple answer is no, and this is entirely dependent on your circumstances.

If you do not sign the Settlement Agreement, you will preserve your full rights to make a claim against your employer but, with the outcome of many Employment Tribunal claims being uncertain and potentially costly, a Settlement Agreement route often facilitates a straightforward resolution of the ending of the employment relationship for both the employer and the employee.

You will need to consider the terms in the Settlement Agreement very carefully. For example, if the Settlement Agreement provides for a financial lump sum, this sum needs to be fair, as once signed the agreement becomes legally binding and you would be unable to seek additional payments. When calculating the financial sum, factors such as age, length of employment and earnings are to be considered, whilst you may wish to consider any losses suffered to date, and how long it may take you to secure new employment in the future.

You also need to be sure that you are satisfied that you can comply with the terms within the Settlement Agreement, as if you accept the agreement, and then breach a provision within this, the employer can look to enforce the agreement and recoup any sums paid to you. Some agreements can be quite restrictive, for example in terms of where you may be able to work in the future, or the nature of the work that you are permitted to do, which often mirror the contents of your contract of employment.

It is imperative that you obtain expert legal advice on the Settlement Agreement, whilst it is a legal requirement that independent advice be obtained. Your legal adviser will advise you on the terms of the agreement and any restrictions which may exist, and on any monetary sums to which you may receive, and will inform you if the Settlement Agreement is in line with your employment contract. Following the advice you receive, and if required, you can request your legal representative negotiate the terms of the agreement on your behalf if you do not feel comfortable negotiating yourself.

What action should I take once I have received a Settlement Agreement?

Contact an employment law specialist as soon as you receive your agreement. You are obligated to take independent legal advice as part of the terms within the agreement in any event, so do not worry about informing your employer that you are taking time to consider the Settlement Agreement and need to obtain advice.

In addition to a copy of the Settlement Agreement, it is likely that your legal advisor will request a copy of your employment contract as well as a recent payslip, plus any other relevant documentation. An appointment will be arranged either virtually or in person to go through the agreement in depth to ensure that you understand all the provisions contained. Your advisor will discuss the potential employment claims you may have, in addition to the financial sums proposed to you.

Following your appointment, and if you are content with the terms of the Settlement Agreement, signing the agreement can then be arranged. Alternatively, if you would like to negotiate further terms you can do so, or instruct your advisor to do so on your behalf.

If you have any questions or have been presented with a Settlement Agreement in which you need advice, please contact our specialist employment team to help you through this process on 0191 232 8451 or email 


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