Settlement Agreements - Settlement Agreement Solicitors

Whether you’re facing redundancy, resolving a workplace dispute, or seeking to leave your role on amicable terms, settlement agreements provide a clear, legally binding resolution between employers and employees, often involving financial compensation and agreed-upon terms.

Coming to a settlement agreement can feel overwhelming and confusing, especially if you’re unfamiliar with the legal jargon or the processes involved. But it doesn’t have to be this way.

Our same-day settlement agreement service provides straightforward, professional legal advice to ensure a swift and smooth resolution. We explain everything you need to know in plain English, ensuring you feel confident and informed as you navigate this important step.

What is a settlement agreement?

A settlement agreement is a legally binding contract between an employer and an employee. It outlines specific terms under which the employment relationship will end or a dispute will be resolved.

Employers typically use settlement agreements to:

Resolve workplace disputes and avoid tribunal claims.
Formalise redundancy arrangements.
Conclude employment relationships amicably and with clear terms.

The key feature of a settlement agreement is its finality. Once signed, the employee waives their right to bring work-related claims against their employer*. In return, the agreement often includes a financial compensation payment.

*In very rare cases, a claim may be permitted after a settlement agreement has been signed.

Legal requirements

For a settlement agreement to be valid, the employee must:

Receive independent legal advice to ensure they understand the terms and implications of the agreement.
Be advised by a qualified professional who is covered by professional indemnity insurance.
Agree to the terms of the agreement (these must be clearly outlined), including the specific claims being waived.

To be valid, the agreement must also comply with relevant employment laws and regulations. It must also be in writing.

Employers must allow the employee sufficient time to review the agreement and obtain advice, ensuring there is no undue pressure to sign. If your employer breaches their obligations during the settlement agreement process, you may have a legal claim against them.

What’s included in a settlement agreement?

While the specifics of each settlement agreement varies depending on the circumstances, your contract may include:

Financial compensation: Details of the payment you’ll receive, such as redundancy pay, notice pay, or an ex gratia sum (also called a termination payment).
Confidentiality clause: An agreement to keep the terms of the settlement and the circumstances surrounding it private.
Waiver of claims: A list of legal claims you agree not to pursue against your employer.
Reference provision: Details of the reference your employer will provide.
Non-disparagement clause: A mutual agreement not to make derogatory comments about one another.
Legal costs: Confirmation that your employer will cover the cost of your legal advice for the agreement.
Notice arrangements: The notice your employer will give you. Notice may be worked, served on ‘garden leave’, or paid in lieu.
Employee warranties: Confirmation that you are not misrepresenting your circumstances to affect the terms of the agreement (e.g. that you don’t have a job to go to at the date of signing).
Benefits: Details of any healthcare, pension contributions, car allowance etc. you are entitled to.
Handover and practical steps: Details on returning property, passwords, deleting employer work from personal devices, etc.
Tax implications: Clear details on how various payments will be treated for tax purposes, ensuring you understand the potential liabilities or benefits.
Consequences: Information on what will happen if either party breaches the terms of the settlement agreement.
Post-termination covenants: Clauses to protect the employer’s business interests (e.g. non-compete and non-solicitation clauses). These protections must be reasonable in scope and duration, typically lasting no more than six months.

What is the settlement agreement process?

You will typically follow these steps when negotiating and signing a settlement agreement:

Initial proposal: The employer offers a settlement agreement, either during redundancy/termination discussions or to resolve a workplace issue. In some cases, you may be the one to request the agreement.
Legal advice: You seek independent legal advice to review the terms and ensure your rights are protected.
Negotiation: Terms are discussed between you, your legal adviser, and your employer. This phase may involve adjustments to financial compensation, references, or other clauses.
Signing the agreement: Once both parties are satisfied, the agreement is signed, making it legally binding.
Payment: The agreed compensation is paid, often within a specified timeframe after signing.

In some cases, navigating the settlement agreement process can be stressful and all-consuming, but our expert solicitors take the pain away. Our same-day service ensures your agreement is quickly reviewed, explained, and signed, so you can move forward with complete peace of mind.

What is a reasonable settlement agreement?

A reasonable settlement agreement reflects fair compensation for the employee while protecting the employer’s interests. Factors influencing reasonableness include:

The nature of the dispute or redundancy/termination.
The length of your service, your position at the company, and the amount of your salary.
Potential claims you might bring if no agreement is reached.
The amount these claims are likely to secure at a Tribunal.

The settlement agreement should be tailored to your specific circumstances and the legal considerations at hand.

How long after a settlement agreement do I get paid?

The payment timeline is typically specified within the agreement. The payments to be received might include:

Salary payments: These tend to be paid as usual until the end of your employment.
Termination payments: Any ex gratia sums due are likely to be paid after your employment ends. Most employers process these payments promptly, often within 7 to 28 days.
Statutory redundancy pay: This is a tax-fee payment which is capped. This payment is also made after your employment has ended.
Bonuses: Any bonuses owed will depend on the specific terms outlined in the agreement and whether the performance criteria were met.
Payment in lieu of notice and holiday pay due: If you are entitled to PILON and/or holiday pay, this may be included in your final salary or paid separately, depending on the agreement.
Pension contributions: Contributions to your pension scheme usually continue until the end of your employment, but any additional arrangements should be clearly outlined in the agreement (e.g. tax-free payments).

The payment terms and timelines must be clearly outlined in the settlement agreement to prevent delays.

Is a settlement agreement right for you: The big issues

Settlement agreements can be appealing. They avoid the stress of fighting an employment claim or undergoing tense negotiations, and instead ensure a clear, practical, and collaborative path to resolution. This helps employees move forward with financial and professional certainty.

However, you are not obligated to sign a settlement agreement. If you have a strong employment claim and want to pursue it, you may decide to go the litigation route instead of accepting the offer.

When deciding what is best for you, weighing up the ‘pain to gain’ is essential. You may end up with a higher payment if you get to court, but you should also consider the time, energy, and emotional toll of pursuing a legal claim versus the practical benefits of resolving the matter through a settlement.

Things to keep in mind when deciding whether to sign a settlement agreement include:

Future plans: Where do you want to be next, and how does the agreement support that?
Financial outcomes: Compare what you’ll take home under the agreement to what you might receive from a tribunal award.
Strength of legal claim: If considering a claim, think about the facts you’re relying on (e.g. dates, events, and supporting documents). How can you prove what happened? Do you have clear evidence to support your claims?
Employment prospects: If you can find another job relatively quickly, the stress and uncertainty of pursuing a legal claim may not be worthwhile.

By considering these factors, you can make a well-informed decision about whether to proceed with a settlement agreement or explore litigation.

Advantages of settlement agreements

Settlement agreements provide several benefits for employees, including:

Certainty: Clear terms regarding compensation and employment termination.
Speed: A quicker resolution compared to lengthy legal proceedings. The process is even swifter when using a same-day service.
Confidentiality: Protection of sensitive information for both parties.
No legal costs: Employers typically pay for the employee’s legal advice.
No legal fees: Up to 33% of any tribunal award or settlement may be deducted for legal fees if you go to court.
Tax efficiency: Compensation payments are tax-free up to £30,000, which is financially advantageous.
Reputation: With an agreed reference and protection from negative comments by the employer.
Career prospects: Avoids unresolved legal issues that may put-off potential employers.
Litigation risk: There’s always a risk of losing if you pursue a tribunal claim. Settlement agreements mitigate this.
Stress: Tribunals are famously stressful and can take over a year to reach a hearing.
Avoids conflict: If you opt for litigation you may have to deal with former colleagues as adversaries. This can be particularly unpleasant.

Are there any disadvantages to a settlement agreement?

While generally advantageous, settlement agreements may have downsides:

Waiving legal claims: Once signed, you lose the right to bring claims against your employer related to the agreement.
Confidentiality restrictions: Limitations on discussing the terms of the settlement agreement/termination may feel restrictive, especially if you feel wronged.
Lack of legal knowledge: Employees may feel confused about the terms of the agreement and their fairness. This emphasises the importance of legal advice.
Employment restrictions: Having to agree to certain clauses can be off-putting. However, non-compete clauses in settlement agreements are only enforceable if they are reasonable in scope, geography, and duration.

How much will a settlement agreement cost?

For employees, legal advice for a settlement agreement is often provided at no personal cost as your employer covers the legal fees. Employers should expect to pay fees of between £350 and £500 (plus VAT). However, in more complex cases, they may pay more, and employees could be responsible for a portion of the additional costs, depending on the agreement.

At GTE, our same-day settlement agreement service typically costs no more than £500 plus VAT and your employer pays – not you. The fee covers advice on the agreement and reasonable negotiations and ensures you get access to expert guidance without incurring financial strain.

With employer-funded legal advice, navigating your settlement agreement is straightforward and stress-free.

Why do companies offer employee settlement agreements?

Companies offer settlement agreements for several reasons, including:

Avoiding tribunal claims
Settlement agreements help employers avoid the financial and reputational risks of protracted legal disputes. By resolving issues early, both parties can move forward without the time and expense of a tribunal. Settlement agreements also help employers and employees to part ways on mutually agreed terms, reducing animosity and maintaining professional respect.

Formalising redundancy processes
Settlement agreements are often used during redundancy situations to provide clarity and assurance for employees, while protecting the employer from potential claims.

Protecting confidentiality and business interests
Employers value the ability to safeguard sensitive information about internal disputes or organisational decisions, ensuring reputational integrity. These agreements may also include provisions to safeguard intellectual property, trade secrets, and business relationships from potential misuse.

Maintaining workplace morale
By resolving disputes swiftly and professionally, employers can minimise the impact on team morale and avoid the adverse ripple effects of unresolved issues.

How to negotiate a settlement agreement

When negotiating a settlement agreement, a clear understanding of your rights and priorities helps to ensure a fair outcome. To get the most out of your agreement, you should:

Understand your value: Consider factors like your length of service, experience, potential claims, and financial needs.
Seek legal advice: A solicitor can identify areas for improvement and advocate for better terms.
Maintain professionalism: Approach discussions calmly and collaboratively to avoid tension and the escalation of any disputes.
Highlight key concerns: Address areas like references or restrictive covenants during negotiations.

ACAS’s Code of Practice on Settlement Agreements offers valuable recommendations to help ensure transparency and fairness during negotiations.

Our same-day service will support you through the negotiation process with speed and precision. We understand the urgency and importance of securing a fair settlement agreement, which is why our team of experts:

Provides immediate advice on the terms of your agreement.
Identifies opportunities to negotiate better compensation, references, or clauses.
Ensures your interests are protected.
Facilitates a stress-free process, allowing you to confidently focus on your future.

My settlement agreement says ‘without prejudice’ – what does that mean?

The term ‘without prejudice’ means discussions and offers made during settlement negotiations cannot be used as evidence in any future court or tribunal proceedings. This encourages open dialogue and protects both parties during negotiations.

Can I get a job after a settlement agreement?

Signing a settlement agreement does not prevent you from securing a new job once your notice period has passed and you have formally left your employment. However, depending on the contract terms, specific clauses – like non-compete or confidentiality clauses – may have implications on your next career move. As such, it’s crucial to:

Review restrictive covenants: Understand any limitations on working for competitors or in specific industries.
Request references: Ensure your agreement includes a clause about references to support your job search.

Most employees move on successfully after signing a settlement agreement, particularly with a fair reference in place.

Same-day settlement agreement legal advice

To avoid a protracted process, our same-day service ensures your settlement agreement is reviewed, negotiated, and signed promptly. With expert guidance, you can:

Gain clarity on your rights and obligations.
Ensure fair terms and compensation.
Leave your role with confidence and peace of mind.

Settlement agreement FAQs

Are settlement agreements taxable?

Settlement agreements can have tax implications. Compensation payments up to £30,000 are generally tax-free, provided they are genuine compensation, not regular salary or bonuses. However, payments for notice periods or bonuses are typically subject to tax and National Insurance.

Payments into pensions might avoid being taxed as income, which can be particularly beneficial for higher-rate taxpayers. The payment must adhere to the annual pension contribution limit. Contributions beyond this limit could incur tax charges.

What is a PAYE settlement agreement?

A PAYE settlement agreement (PSA) is an arrangement between an employer and HMRC that allows the employer to cover the tax and National Insurance contributions on certain employee expenses or benefits. This is unrelated to individual settlement agreements.

Can an employee request a settlement agreement?

Yes, employees can request a settlement agreement if they feel it’s the best way to resolve a workplace dispute or facilitate a smooth exit. However, the employer must agree to engage in such discussions.

Is a settlement agreement the same as redundancy?

No, a settlement agreement and redundancy are not the same. Redundancy refers to the termination of employment due to reduced business needs, while a settlement agreement is a voluntary contract that resolves employment disputes or ends a contract of employment on agreed terms. However, settlement agreements are often used to help employers avoid the formal redundancy procedure.

Are settlement agreements confidential?

Yes, settlement agreements typically include confidentiality clauses that require both parties to keep the terms and circumstances of the agreement private. However, there are exceptions to this rule. For example:

Public interest disclosures: Discussions involving whistleblowing or reporting unlawful activities may not be confidential, as public interest overrides confidentiality agreements.
Legal obligations: In some cases, disclosure may be required by law, such as during legal proceedings or regulatory investigations.

Can a settlement agreement be overturned?

In rare cases, a settlement agreement can be challenged or overturned if it was entered into under duress, fraud, or misrepresentation. It’s crucial to ensure all terms are understood before signing.

Do I have to sign a settlement agreement?

No, you are not obligated to sign a settlement agreement. Legal advice will help you understand the implications of signing and decide whether the agreement meets your needs.

Does a settlement agreement affect benefits?

A settlement agreement can impact government provided benefits, particularly if you receive a large lump sum payment. It’s advisable to seek guidance on how any payment might affect your entitlements.

Contact our settlement agreement solicitors

With over 30 years’ experience and having processed over 1,000 settlement agreements, we have a proven track record in supporting employees through the process.

We offer a same-day service and your employer will pay our fees, so there is no cost to you. Contact GTE settlement agreements today on 020 7247 7190 or complete our website enquiry form.

Settlement Agreements Explained