Settlement agreements

If you're negotiating a settlement agreement with your employer, you will need to consult a legal specialist. Tees can help you get the best deal.

Gez Gibbs, Brentwood
Gez Gibbs, dispute resolution and litigation specialist in Brentwood

Settlement agreements legal advice

Settlement agreements (which used to be known as compromise agreements) are legally binding agreements between employers and employees. They’re often used in redundancy situations to offer enhanced payments to employees. They can be used when the parties want to part company for other reasons. Usually your employer agrees to pay you an amount of money in return for you agreeing not to take them to an employment tribunal or other civil court in the future.

Our settlement agreement services

  • advise you on your legal rights so you get fair deal
  • negotiate with your employer on your behalf, so you get the best possible result
  • explain the additional benefits you could secure e.g. a good reference for a future employer, agreement on the wording of how your departure is explained to colleagues, clients, suppliers etc.
  • advise you if we think your employer is treating you unfairly, as to what legal action you could take if you choose
  • draft the settlement agreement legal contract

Call our settlement agreement solicitors on 0800 013 1165

Settlement agreements: What you need to know

Whose interests are being protected in a settlement agreement?

For you as the employee, you’ll have certainty about the terms of your exit. For your employer, they’ll have the knowledge that you won’t take them to a tribunal or to court over your redundancy or termination of employment. So there are advantages for both sides. Your employer will tell you to take independent legal advice from a solicitor before you sign the agreement (this is a requirement) and they may make a contribution towards the costs of doing so.

Getting you the best settlement agreement possible

When you come to us for legal advice about a proposed settlement agreement, we’ll concentrate on getting what’s best for you. We know that it can be a stressful time, so we’ll try to make it as easy as possible by explaining everything in plain English and answering any questions that you have. We’re always happy to see you in person, but we’ll keep in touch by phone, email and letter – whatever works for you, so you only need to come to our office if you want to.

We're here to help

You’ll find our employment team friendly and easy to talk to. Call us if you're employer has suggested a settlement agreement and we’ll help you to make sure you get a fair deal.

Our specialist lawyers are based in:

  • Cambridgeshire: Cambridge
  • Essex: Brentwood, Chelmsford, and Saffron Walden
  • Hertfordshire: Bishop's Stortford and Royston 

But we can help you wherever you are in England and Wales.

Call us for an initial consultation with our Employment Law solicitors on 0800 0131165

 Or fill out our enquiry form and a solicitor will get in touch.

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Make an enquiry today

Settlement agreements FAQs

What is the difference between a compromise agreement and a settlement agreement?

They are the same thing essentially. In July 2013 the government introduced some changes including pre-termination negotiations and at the same time changed the name from compromise agreement to settlement agreement.

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What does “without prejudice” mean?

It means that any discussions or negotiations between the parties are confidential and “off the record” and cannot usually be used against the other party, if the negotiations break down and a claim is brought in the court or tribunal. An employer may also commence what is known as a “protected conversation” which is similar. If the employee has been placed under undue pressure or there is no genuine dispute, the discussions may not be “without prejudice” or protected from disclosure. Care should be taken in what is said in such communications, and you should seek specialist legal advice.

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What is a reasonable settlement agreement?

There is no set method or formula to calculate what you should get under a settlement agreement, however, at a minimum you should receive any contractual payments (i.e. salary and benefits to termination, any accrued but untaken holiday at termination, notice pay, any contractual bonus/commission/shares etc).  In addition to this it is usual for the employer to offer a payment as compensation for loss of office. 

If the reason for termination is redundancy this should include any entitlement to a statutory redundancy payment.  The first £30,000 of any compensation payment should be able to be paid tax free so long as it is not made up of any contractual elements.  Employers generally offer between 1 to 6 months salary on top of the contractual entitlements.

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Are settlement agreements tax free?

Payments of up to £30,000, which are not made up of any notice or other contractual elements, can often be paid without any deduction of tax. However, we strongly recommend you take specialist advice from an accountant on the tax treatment of lump sums received , particularly in complex transactions involving, for instance a transfer or sale of shares, alongside leaving employment. At Tees we will work with your accountants and can provide you with specialists to assist you.

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How much do solicitors charge for settlement agreement advice?

It is usual for an employer to offer a contribution towards legal fees but there is no legal requirement for them to do so. Contributions are usually between £350 and £750 plus VAT but it depends on the employer.  We try to stick within the contribution offered by the employer where possible but if you require us to negotiate with the employer, costs could rise above this and unless the employer agrees to increase their contribution, you would be responsible for any costs in excess of the contribution. 

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Why do I need a solicitor to sign a settlement agreement?

For the settlement agreement to be legally binding the employee must take independent legal advice so that they understand the terms of the agreement and the implications of signing it.  Once it is signed by both parties it is open (that is, no longer "off the record" as part of a without prejudice negotiation) and binding.

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What should be included in a settlement agreement?

There are certain formalities to be met, regulated by law under the Employment Rights Act. In summary, there will be some essential terms relating to the employee signing away their rights. In addition, the agreement will commonly include terms around any compensation payment to be made, agreed reference and any post-termination restrictions. Terms around confidentiality are also common but subject to limitations, for instance that employees cannot be prevented from making a “whistleblowing” protected disclosure. 

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Can I ask for a settlement agreement?

Usually it is the employer who takes the first step in offering a settlement agreement to an employee, however it is possible to request the same from your employer.  Any discussions with the employer would need to be on a without prejudice basis and would usually be termed a “protected conversation”. 

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Tees coronavirus update

We’re open and here to help you. We’re running as normal with our employees all working from home.

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You can call us as normal on 0800 013 1165 or email us: hello@teeslaw.com.

You can also find contact details for all our advisers here. 

As a flexible and technologically-adept firm, we already had many home-working systems in place. We have now rolled this technology out to all our employees working for clients, so they can continue to work normally - and from home.

If you are a client, please be assured you can get in touch with Tees and we are still working on your case. To replace face-to-face meetings, we have the facilities to do video-conferencing, conference calls or just speak on the phone, as you need.

Due to the circumstances, please call us if you would have wanted a home visit, and we can organise the best and safest way of being in touch.

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