Settlement agreements

Settlement Agreement

Employment relationships come to an end. At this point employees will often be asked to sign a Settlement Agreement.

As part of the process the employee is required to take independent legal advice.  Normally the employer pays the cost of doing this.

We are able to provide this advice which includes explaining your legal rights and the impact of the Settlement Agreement.

Settlement Agreement in more detail:

What is a Settlement Agreement?

A Settlement agreement is the method by which to end employment relationships. The aim of the process is agree terms between the employer and employee. This happens when terminating employment or settling potential claims arising from the termination of employment.

The settlement agreement will allow the employee to receive financial compensation for loss of his or her job. In return the employee will agree not to pursue defined further claims against the employer. These could have come from the employment or its termination.

The benefit for the employer is that the agreement represents finality and closure. It removes the risk of an expensive employment tribunal claim from the employee, following termination of their employment.

What does a Settlement Agreement contain?

From the employees perspective, the payment made on termination is the most significant aspect of the settlement agreement.  It unlikely that those leaving employment will automatically take up employment elsewhere on the following day.  It is important that the employee seeks adequate compensation for loss of their employment, to cover this reduction in earnings.

In return the employer will want protection against any claims being brought against them.  The agreement must specify which claims they wish to compromise.  Certain claims such as future personal injury claims or accrued pension contribution claims which should not be compromised.

A settlement agreement has scope to include an agreed written reference. The reference can ensure that the employee is aware of how the employer will be corresponding with future prospective employers.

A number of additional clauses may be incorporated into the settlement agreement. It is worth remembering that the form of the agreement itself has relatively few defined rules attached to it. Therefore the scope for negotiation on the terms is wide. Generally acceptable to both employers and employees would be a standard of agreement.

Is independent legal advice required for a Settlement Agreement?

As noted, the agreement reflects a complete waiver of nearly all claims against the employer.  Given the significance of this waiver, legislation requires the employer to obtain independent legal advice on the agreement prior to signing.

Solicitors specialising in employment law offer such advice. Some other specialist professionals are also able to advise.

Who pays for the Settlement Agreement?

Since the taking of legal advice is essential for the agreement to be valid the employer will invariably make a reasonable contribution to the employee’s legal costs. Contribution towards legal costs will be outlined within the agreement. Ordinarily this will satisfy any charges incurred when being advised on the terms and effect of the settlement agreement.

What should an employee do when presented with a Settlement Agreement?

You will need to contact our First Contact Team to arrange an appointment to review the document.  It is also advisable to have a copy of your employment contract available at that meeting, should any issues arise in relation to it.

If you have a query or would like to book an appointment please get in touch with our  team on 01256 320555 or email


  • paul-cowdery

    Paul Cowdery

    Litigation & Employment Director

  • Patricia Kinchington

    Legal Secretary

  • Laura Pink

    Legal Secretary