Everything you need to know about settlement agreements and what to do if you are offered one by your employer.

What is a settlement agreement?

A settlement agreement (which used to be called a compromise agreement) is a legally binding document that details an agreement between an employer and their employee that usually terminates the working relationship under the terms laid out.

A settlement agreement will usually include a severance package for the employee, which is offered in return for ending the employment contract on a set date and the employee agreeing not to bring a future claim against the employer. The terms of a settlement agreement often include a non-disclosure or confidentiality clause, which means that the employee can’t discuss what was included in the agreement or the circumstances of their exit from the organisation with anyone else.

Our employment solicitors are vastly experienced and are here to assist if you’ve been offered a settlement agreement by your employer.

Explore our settlement agreement legal services

Our employment solicitors are vastly experienced and can assist if you’ve been offered a settlement agreement by your employer.

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Why do employers use settlement agreements?

If an employer wishes to end the employment of one of their staff, using a settlement agreement (if accepted by the employee) often means that they avoid having to use the full and proper process for actions such as redundancy, or disciplinary action.

It’s often used, although not always, where there is an ongoing or potential dispute between employer and employee. Using a settlement agreement to come to an arrangement that both parties are satisfied with means that the employee will forfeit their right to bring an employment tribunal or other claim against the employer.

What are settlement agreements meant to achieve?

Settlement agreements are designed to achieve a clean break between employer and employee, with both parties able to move forward once the agreement has been signed.

Can a settlement agreement be used instead of redundancy?

Using a settlement agreement rather than redundancy is acceptable from an employment law point of view, but it will usually cost an employer more to do things this way. This is why employers will usually only offer a settlement agreement over redundancy if they either:

  • Want to terminate the employment quickly, without needing to follow the full redundancy consultation process required by UK employment law
  • Believe that the employee could potentially bring a tribunal or other employment-related claim against them and wish to stop this from happening by entering into a settlement agreement instead of completing a redundancy process.

What’s the difference between redundancy and settlement agreements?

There are several important differences between redundancy and settlement agreements. Firstly, the laws around how redundancies are handled by employers are extensive and mean that certain processes, timelines and protocols need to be adhered to. With a settlement agreement, the terms can be decided by the parties, so the same timescales and processes don’t have to be followed.

Another difference is that the employee gets a choice with a settlement agreement; they can either sign it and agree to abide by the terms, or they can refuse to sign it. With redundancy, the employer alone will make the final decision and although an employee could potentially challenge it if they are made redundant in a way they feel is unfair and in contravention with employment law, they usually have no choice but to accept being made redundant.

Who can give employment settlement agreement advice to employees?

In order for a settlement agreement to be legally binding, the employee must take independent legal advice on the settlement agreement they have been offered before they sign it. This is because signing the agreement means they will waive certain employment rights they have under law, so they need to be aware of any implications of doing this so they can make an informed choice.

Therefore, an employment law solicitor should be consulted to give settlement agreement advice on behalf of the employee. They can explain all of the potential implications of every clause in the agreement, to make sure that you fully understand what you are signing and what rights you are expected to waive. You can make a decision on whether you think the agreement is reasonable or fair, or you can potentially ask your solicitor to help you negotiate on some of the terms if they think this is worthwhile.

Our employment solicitors are vastly experienced and are here to assist if you’ve been offered a settlement agreement by your employer.

Explore our settlement agreement legal services

Our employment solicitors are vastly experienced and can assist if you’ve been offered a settlement agreement by your employer.

Find out more

Do I have to sign a UK settlement agreement if my employer offers me one?

You do not have to sign a settlement agreement that is offered to you by your employer. You can try to negotiate the terms of the agreement if you feel that it isn’t reasonable in the given circumstances, or you can simply reject the agreement.

However, it’s important to note that your employer may not be willing to negotiate on the terms of the settlement agreement, and if you refuse to sign it, they will be likely to take another route to terminate your employment, which might mean that you are worse-off financially than if you had signed it, depending on the circumstances.

What is a reasonable settlement agreement?

Every situation is different, so there is no one set of guidelines as to whether you have been offered a reasonable settlement agreement or not. Your solicitor is ideally placed to advise you on this because they will understand your individual circumstances.

That being said, a settlement agreement would usually include a severance sum that is higher than i.e. the redundancy payment you would be due if they were to make you redundant. It may also include other terms that could be favourable to you, such as providing an agreed reference for you to take forward in your career.

There are other issues to consider, such as the potential stress involved if you don’t sign the settlement agreement and remain their employee for the time being. It’s not always just about financial aspects.

Before you sign the agreement, it’s important to decide whether you think what you are being offered by your employer is going to be better for you than the alternatives, which your employment law solicitor will discuss with you.

How Moore Barlow can help

If you would like to discuss a settlement agreement that you’ve been offered by your employer, we can offer specialist advice to help you find the best way forward. We have offices in London, Southampton, Woking, Richmond, Lymington and Guildford and we offer specialist support and expert advice to clients all over the country.

Get in touch with our employment law team to find out more.

Explore our settlement agreement legal services

Our employment solicitors are vastly experienced and can assist if you’ve been offered a settlement agreement by your employer.

Find out more


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