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The purpose of a settlement agreement is to allow an employer and employee to terminate an employment relationship with certainty for all sides. This should avoid any potential costly disputes in the future. It is important to ensure the agreement is properly drafted to reflect the unique circumstances of the termination. Failure to put in place a settlement agreement, may result in an ongoing risk of potential liability after the active employment relationship has come to an end.

What should a settlement agreement contain

Settlement agreements need to meet certain standards to be legally enforceable. These are:

  • The settlement agreement must be in writing.
  • The settlement agreement must relate to the individual situation and not a generic document.
  • The settlement agreement must state that the legal conditions regulating settlement agreements are satisfied for it to be valid.
  • There must be a named independent legal adviser from whom the employee has received advice relating to the terms and effect of the proposed settlement agreement.
  • The legal adviser must be covered by professional indemnity insurance.

If the settlement agreement fails to comply with these legal requirements, it will not be valid and an employee may still be able to pursue a claim against the employer.

Farnfields employment team have the legal expertise to advise you and ensure your settlement agreement is legally binding, from the perspective of an employer or employee. We can help you through the process with efficiency and ensure the best result is achieved. Call us on 01747 825432 or email


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