Understanding Settlement Agreements: Your Complete Guide
Settlement agreements are legally binding contracts between an employer and employee, typically used to bring an employment relationship to an end on mutual terms. These agreements offer certainty by outlining exactly what is expected from both sides, including any agreed compensation and confidentiality clauses.
What is a Settlement Agreement?
A settlement agreement (formerly called a compromise agreement) is a written contract in which an employee agrees not to pursue any claims against their employer, usually in return for a payment or other benefit. They are widely used for redundancies, exits following disputes, or resolve potential claims such as unfair dismissal, discrimination, or breach of contract.
When are Settlement Agreements Used?
Settlement agreements are commonly used to:
- Terminate employment on agreed terms
- Resolve disputes or grievances, such as allegations of discrimination or unfair dismissal
- Avoid lengthy and costly legal proceedings
Key Benefits
- Certainty over the terms of departure
- Clear financial settlement details
- Confidentiality for both parties
What Does a Settlement Agreement Contain?
Typical terms include:
- The settlement payment (and details of tax treatment)
- References (if provided)
- Confidentiality clauses
- Waiver of specific employment rights
- Return of company property
- Restrictions on future claims
Do I Need a Lawyer for a Settlement Agreement?
Yes, it is a legal requirement to obtain advice from a qualified solicitor or authorised adviser before signing any settlement agreement. The employer will normally cover the reasonable costs of your legal advice as part of the agreement.
Are Settlement Payments Tax Free?
Payments of up to £30,000 for compensation for loss of employment can usually be paid tax free, but sums such as unpaid salary, holiday, or bonuses will be taxed as normal income.
Can I Negotiate the Terms?
Absolutely. Settlement agreement offers are often negotiable, including the payment amount, reference wording, or post-termination restrictions (like non-compete clauses). A specialist employment solicitor can help you improve your terms.
Key Steps in Settlement Agreements
- Employer proposes a settlement and provides a draft agreement
- Seek specialist legal advice (the employer usually pays for this)
- Negotiate terms if needed
- Once agreed, sign the final document with your adviser’s signature
- Receive your settlement payment and any other benefits set out
Why Choose Settlement Agreement Lawyers?
- Specialists in fast settlement agreement advice
- Free initial consultations
- Friendly and pragmatic negotiations
- All work completed promptly and in strict confidence
For expert assistance with your settlement agreement, our team is ready to guide you through the process and ensure you receive the best possible outcome.
