Settlement Agreements


What are Settlement Agreements?

Settlement Agreements are contracts between employee and employer and they are used to resolve employment disputes and/or agree the terms on which the employment relationship ends. A Settlement Agreement is a legally binding document, with the aim being that the employee will not to pursue a claim against his/her employer, in return for which they employee will receive a sum of money (usually tax-free) as an incentive for doing so.

When you hear people talking about such things as ‘gagging clauses’, ‘termination agreements ’, or ‘compromise agreements’, they really boil down to the same thing – they are talking about settlement agreements.

When you sign a settlement agreement it will be intended to bring to an end all areas of dispute between you and employer and you will not be able to bring any further claims against them in in relation to your employment. The exceptions to this are limited. One exception would be in the case of certain claims for personal injury that only develop after you have left that employment .


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Will I have to keep details of the Settlement Agreement confidential?

Almost certainly. If you are offered a Settlement Agreement then you should not discuss this with anyone until you have taken legal advice from a specialist settlement agreement solicitor. You will then be advised who you are allowed to mention the agreement to, although this is likely to be very limited. It is common that the confidentiality terms will be very strict, but sometimes they will be written in such a way as not to stop you discussing with your immediate family, or possibly being able to let a future employer know to a limited extent, the circumstances in which you came to leave the employer with whom you made the settlement agreement.

There are a number of clauses that are commonly found in Settlement Agreements. These include:

  • That the terms of the Agreement are to be kept confidential and that neither party will discuss them (with anyone other than specified individuals);
  • That neither party will make any negative comments about the other; and,
  • All property owned by the other party to the agreement must be returned.

Will I still get a reference from my employer?

A reference can be agreed as part of the terms of the Settlement Agreement so that you know exactly what your employer will put in any future reference they provide.

Should I get a solicitor for a Settlement Agreement?

Yes. The employee must have received independent legal advice from a solicitor on the terms and effect of the Agreement in order for a Settlement Agreement to be recognised in law. Leaving aside the legal requirement to receive advice, it makes sense to do so as well. A settlement agreement solicitor may be able to alert you to matters that you may not have considered. For example, the circumstances leading up to the issue which has led you to agreeing to enter a settlement agreement might have involved an element of discrimination against you. You might be unaware that you have been discriminated against or that you may have a claim for unfair dismissal, until advised by an employment law specialist.

How much will it cost?

In almost every Settlement Agreement, there is a clause included that the employer will contribute towards you getting legal advice on about the terms of the Settlement Agreement. Anything between £250 to £500 by way of contribution is commonly offered by the employer. In most cases, the contribution will cover our fees. In more complex cases, the employer’s contribution may not fully cover our fees. In such cases, the contribution is not enough then we would look to agree an increase with the employer. Usually we would send our invoice directly to your employer so you do not have to get involved with paying our fees.

If after negotiation with the employer there is still a shortfall between the amount the employer is willing to pay and the amount of our fees (in the more complicated cases), you may consider that you wish to make up any shortfall yourself, on the basis that we may be better able to negotiate an increase on the agreed amount of the settlement, than you would be able to, if you had to do the negotiations with your employer yourself. We would discuss our likely fees with you at the outset and be able to agree a cap on our fees at a certain limit.

If I agree to the terms of a settlement agreement, how quickly will I get paid?

A clause can be agreed to be inserted into the agreement to say how quickly the settlement monies shall be paid to you. Anything between 7 and 28 days are the usual terms for payment.

I'd like to know more about settlement agreements, can you help?

Within Spencers employment law team we have expert settlement agreement solicitors’ who are available to discuss the implications of signing a settlement agreement and who will be able to help you to negotiate the best possible settlement terms with your employer. Contact us by completing our online enquiry form and our advisors can call when suitable for you. Alternatively please call us direct on 08000 93 00 94.

Funding your settlement agreement advice

There are a number of different funding types in place which can be used to pay for the work we provide on settlement agreements. Please click the button below to find out more information about the funding types available.


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