21 September 2023

What is a Settlement Agreement?

What is a Settlement Agreement?

A settlement agreement is an agreement that may be offered to you by your employer either following or to propose the termination of your employment.

The agreement usually offers you compensation or an “ex-gratia” payment over and above the payments or benefits you are entitled to as part of your contract of employment or your statutory entitlements.

Why do employers offer Settlement Agreements to their employees?

Employers offer settlement agreements to their employees for various reasons including:

  • Where an employee is due to receive an enhanced redundancy payment (a payment that is above their statutory redundancy entitlement);
  • Where there has been a disagreement between the parties and the employer and employee mutually agree to bring the employment relationship to an end; or
  • Where there are performance issues and the employer offers a settlement agreement as an alternative to a performance improvement plan.

Does an employee have to take advice in respect of a Settlement Agreement?

For a settlement agreement to be legally binding, an employee must receive independent legal advice on the terms and effect of the agreement and its effect on the employee’s ability to bring a claim against their employer.

The legal adviser must sign an Adviser’s Certificate to confirm that advice has been given.

Who will pay the legal fees for the advice?

Employers normally contribute towards the legal costs of obtaining advice in relation to the settlement agreement. The employer’s contribution should be confirmed in the settlement agreement.

What advice will you receive in relation to the Settlement Agreement?

We will ensure that your interests are protected and advise you in respect of all terms of the agreement including:

  • The amount of the compensation/severance / ex-gratia payments including when the payments will be made;
  • Salary and benefits including pension until the termination date;
  • Restrictions including post-termination restrictions and confidentiality requirements;
  • Reference; and
  • Employer legal fee contribution.

Our advice will also cover the potential claims you may have against your employer and we can negotiate the best compensation package in the circumstances.

How quickly can we assist?

We appreciate that in situations such as this, you may want to obtain advice and bring matters to a conclusion as quickly as possible and this is something we can assist with.  We can offer a meeting at short notice and will contact your employer promptly following the meeting to raise any concerns or issues in respect of the terms of the agreement.

Once terms have been agreed, we will arrange for you to sign the agreement and then return the agreement to your employer, together with the Adviser’s Certificate.

If you require advice in relation to a settlement agreement you have received from your employer or you think you may receive a settlement agreement from your employer, please contact our Surrey employment lawyer, Chloe Baxter.

If you are an employer and are considering offering a settlement agreement to an employee, please contact Chloe Baxter who can provide you with advice regarding the procedure and the terms of the settlement agreement.

our lawyers deliver an excellent quality service, independently recognised by The Law Society and our many returning clients.

Skip to content