What to look for if you have been offered a settlement agreement

October 24, 2022

A settlement agreement is a legally binding agreement between employer and employee that sets out the terms on which they will end an employment contract.

If you have been offered a settlement agreement by your employer, you are required by law to take independent advice on its terms, to ensure that you understand the implications of signing it.

At Tayntons Solicitors in Gloucester, we advise employees on what their settlement agreements mean to them.   Our employment team have extensive experience in negotiating improvements and working to make sure that employees receive the strongest possible deal.

When do you need to sign a settlement agreement?

If you have raised a grievance or are having problems with your employer, you may be offered a settlement agreement.

In return for agreeing not to pursue a claim, you will be paid a sum of money to leave your employment. This can be the most efficient way of dealing with an issue that has arisen.  It benefits both the employer and employee as it means legal action is not necessary.

Your employer will insist you agree to certain terms.  It is important for you to obtain legal advice so you know the implications those terms will have for you.

A settlement agreement is an opportunity for you to end your employment more quickly than might otherwise be the case and to leave your job with a lump sum and an agreed reference that will be provided to future potential employers.

A settlement agreement will usually be used if you have been offered an enhanced redundancy settlement.

What terms should be included in a settlement agreement?

A settlement agreement will take into account the circumstances of each individual situation, but will usually include the following clauses:

• When your employment will end
• How much pay you will receive, to include salary, payment in lieu of notice, holiday pay and any commission or bonuses due to you.
• The level of your termination payment.  Payments of up to £30,000 are usually tax-free
• A waiver confirming that you will not bring an employment related legal claim against your employer. This will cover all claims except those that cannot legally be waived, such as latent personal injury claims
• A clause stating that both parties will not make adverse comments about the other
• Confidentiality clauses preventing you from disclosing any sensitive information, to include details of the settlement agreement and the existence of a settlement agreement
• A clause setting out the reference that the employer will provide if asked by a future prospective employer
• Agreement by the employer to contribute towards your legal fees in taking independent legal advice on the terms of the settlement agreement

Legal advice on signing a settlement agreement

As you are waiving your legal rights it is a rule that you must take independent legal advice before signing a settlement agreement. Your employer must make a contribution towards these costs.

An expert employment solicitor will be able to provide advice on the terms of your settlement agreement and where necessary negotiate on your behalf to improve the offer that you have been given.

Contact our settlement agreement solicitors in Gloucester

If you have been offered a settlement agreement by your employer, we can provide the advice and guidance you need to ensure that your rights and interests are protected.

Our employment and dispute resolution partner and solicitor, Alex Lyttle, has extensive experience in dealing with settlement agreements, to include negotiating terms where necessary to secure you the best possible deal.

To speak to Alex, ring him on 01452 222 433, email him at alex.lyttle@tayntons.co.uk or request a call back.