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.

Jonathan Insley, Chelmsford

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.

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.

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

Call us for an initial chat, at no obligation, or fill out our enquiry form and a solicitor will get in touch.

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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 amount of money should be offered under a settlement agreement?

There is no set method to calculate an amount due under a settlement agreement. At a minimum an employee should normally be paid their notice pay (unless they have been dismissed for gross misconduct) plus any accrued but untaken holiday (if any) and any other contractual payments.

Additional compensation for loss of office will differ depending on the circumstances and facts relating to the termination of employment.  Employers will often consider length of service and what an employee could achieve if they were to take a claim to the employment tribunal.  It is not uncommon for employers to offer between one to four months’ salary on top of contractual entitlements, but there is no one size fits all.  Make sure you take legal advice.

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Will I have to pay tax on my settlement payment?

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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Do I have to pay legal fees for advice on a settlement agreement?

An employer would usually offer to contribute towards legal costs, although there is no legal requirement for them to do this.  The contribution will not necessarily cover all of the legal costs incurred, for example, if long negotiations are entered into with the employer, or the employee wants additional advice. In those circumstances the employee will normally be responsible for those costs unless the employer can be persuaded to pay more. 

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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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Make an enquiry today

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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