What is a Settlement Agreement?

What is a Settlement Agreement?

A settlement agreement is a legally binding agreement made between an employer and employee usually when the employees’ employment is being terminated.  Settlement agreements set out each party’s legal position regarding key areas such as compensation, confidentiality, post-termination restrictions, references and more. If an employee signs a settlement agreement they are giving up their right to bring a claim in the Employment Tribunal against their former employer. This means a settlement agreement is final and ends any potential dispute between the employer and employee. Each settlement agreement is different and reflects the unique relationship between the employer and employee. Signing a settlement agreement is less risky than bringing a claim at the Employment Tribunal, this is because you are guaranteed some compensation. If you take your claim to an Employment Tribunal, you need to consider the cost of legal fees and the possibility that you might lose your claim.


What happens if I bring a claim after signing a settlement agreement?

If you issue a claim in the Employment Tribunal after you have signed a settlement agreement, your employer will likely reference the settlement agreement in their grounds of response (defence of the claim). The Tribunal will most likely find they do not have jurisdiction to hear your claim since you waived the right to sue your employer when you signed the settlement agreement. Most settlement agreements will contain a clause stating that any compensation paid to the employee under the agreement must be repaid to the employer in these circumstances. An example of such a clause is “” Settlement agreements can also have clauses that require an employee to pay the employers legal costs if they pursue a claim after signing the agreement.

There are three exceptions that allow someone to bring a claim after they have already signed a settlement agreement. The exceptions are:

  • Accrued pension rights claims.
  • Claims to enforce the agreement.
  • Claims for personal injury when you had no knowledge of them at the time. An example would be asbestos cases. If it later comes to light you were exposed to asbestos at work, you would be entitled to bring a claim despite the settlement agreement.


Why do I need a solicitor to help with my settlement agreement?


You need a solicitor to sign your settlement agreement to confirm you have received independent advice. A solicitor is required to explain to you your legal position and rights under the agreement; this can include advising you on whether the redundancy payment is in line with statutory redundancy payment requirements, if the compensation is sufficient, if there are any outstanding claims not addressed by the agreement and whether you will retain any employee benefits. If you seek legal advice as soon as your employer provides you with a draft settlement agreement, we can negotiate on your behalf to ensure the settlement agreement meets all your needs.

At Adam Bernard, our London-based employment law experts can talk you through each clause of your settlement agreement making sure you understand and are happy with the terms of the settlement agreement.


What information should a settlement agreement contain?

A thorough settlement agreement will set out key information such as:

  • The employees last date of employment (date of termination of employment)
  • The sum of monies to be paid to the employee on termination of employment (the redundancy compensation)
  • Any accrued but untaken holidays to be paid to the employee.
  • Notice pay or payment in lieu of notice (PILON)
  • Details on any reference to be given to future employers.
  • Any continuing obligations the parties will be subject to such as confidentially.
  • Details on waiving the right to bring a claim in the Employment Tribunal or the Civil Court.
  • Details on the tax implications of any payment.


Do I have to pay for my settlement agreement?

Employers are expected to contribute to the cost of the employee’s legal fees upon signing of the settlement agreement. This means the employee does not have to pay for the legal advice or the solicitor’s signature in the settlement agreement. Employers will usually consent to pay a certain contribution towards the employee’s legal costs and this term will be included in the settlement agreement. If you want us to negotiate with your employer on the terms of your settlement agreement, this will not be covered by the contribution your employer provides.


How much compensation will I get for signing the settlement agreement?

The amount an employer will pay to an employee under a settlement agreement depends on a non-exhaustive list of circumstances including but not limited to:

  • The nature and seriousness of any disputes with your employer. For example, if you have suffered discrimination your employer is likely to pay you more and protect its public image.
  • How many full years of service you have and your age, see the Government redundancy pay calculator here.[1]
  • The bargaining position of each party.
  • The strength of any evidence you have regarding your dispute.
  • Your salary.
  • Any bonuses or commission you are due.
  • If you suffer from a disability.
  • The size of your employer.
  • The length of your notice period.

Every settlement agreement will be impacted by the unique circumstances of the dispute. We can consider these factors and advise you on what is a reasonable sum of compensation from your employer.


How do I ensure my settlement agreement is legally binding?


To be legally binding a settlement agreement must be signed by both the employer and the employee. It also needs to be signed by a solicitor who has acted as an independent adviser as discussed above. Some settlement agreements require the parties to sign them a second time, usually a month after. The second signing is to confirm that each party is still happy with the terms of the settlement agreement.


If you need help with your settlement agreement, give us a call to book a consultation today. Our London-based employment experts can negotiate on your behalf and sign the agreement as independent advisers. We provide robust advice to get the best settlement agreement for you, allowing you to move on to the next chapter of your career.







Where can you find us?

Adam Bernard Solicitor’s office is located near Upton Park Station, adjacent to the famous West Ham Stadium, with excellent access to the underground and bus routes. If you are driving then there is free parking available at the front and the rear of our office building.

Edited by Tayyeba Sheikh

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