Settlement Agreements

A Settlement Agreement (previously known as a compromise agreement) is a written agreement between an employee and employer to settle any employment law claims the employee might have against the employer. They are used to resolve employment disputes and/or to deal with termination of employment. They are most commonly used when employment is being terminated.

The advantage of a Settlement Agreement is that both employee and employer have certainty. The employee knows s/he will receive a specific amount of money by a certain time and the Employer can rest assured that they will not face an Employment Tribunal claim.

For a Settlement Agreement to be binding you must obtain legal advice from an independent lawyer. Such legal fees are usually paid for by your employer so there should be no cost to you. .

In short, you give up your rights to sue the employer – and they agree to give you something in return, usually money.

I guess that depends on what they are offering in return. The starting point is usually a termination payment, but you may also get pay in lieu of notice or garden leave, payment for accrued but unused holiday and a decent reference. A Settlement Agreement may also give the opportunity to structure the payment in a tax-efficient way.

It may also suit you better to know now how much money you are going to receive rather than take the chance to be awarded more (or less) by an Employment Tribunal. You may be better placed to move on and find another job instead of fighting your corner in the tribunal, which is likely to take many months.

We will advise you on that and negotiate if appropriate. It depends on the strength and likely value of any claims you might have, compared to what’s being offered. It also depends on other, less scientific, factors such as how risk-averse your employer is and how much time and money they are prepared to spend on dealing with possible claims. You may have already negotiated an improved offer before you come to see us.

If there is no reference included in the Settlement Agreement, it is usually a good idea to ask for one, and to agree the wording in advance. That way you will know what your employer is going to say when future employers request a reference for you. Contrary to popular belief there is no absolute right to receive a reference, and many employers will only give a very basic factual reference including start date, finish date and job title. A more detailed agreed reference can therefore be very useful.

Usually, the employer writes to you to offer the deal and encloses a draft agreement for you to consider. A Settlement Agreement is not binding unless you have taken legal advice on it first – that is where we come in. You come to see us and we will talk you through the terms of the Settlement Agreement and advise on any negotiation points. We can negotiate as necessary on your behalf or you may prefer to handle that stage yourself. When the final deal is agreed, you sign the Settlement Agreement, we sign a certificate to ensure that the Settlement Agreement is binding, the employer signs it, and then you have a binding agreement.

Some clients come to us 100% happy with the Settlement Agreement, in which case we can usually turn it around the same day. If the Settlement Agreement needs renegotiating, then it will take a little longer, but most of our Settlement Agreement cases are wrapped up within a week or two.

The Settlement Agreement will state how much the employer is offering to pay. If we think that will not be enough, for example, because the situation is very complicated or because the agreement needs to be renegotiated or amended, we will usually ask the employer to pay more. You will not have to pay anything unless we have agreed a contribution with you in advance.

To speed things up, it helps if you can bring with you:

The draft agreement and any relevant emails or letters from your employer

• Your contract of employment, if you have one
• A recent payslip, or at least details of your current salary and any benefits
• Some ID (photo driving licence or passport, and bank statement or utility bill)