What is a Settlement Agreement and why should I get advice?

What is a Settlement Agreement and why should I get advice? image

With the existing Furlough Scheme coming to an end soon sadly many employees may find they are facing redundancy if current predictions about the economy are correct.  It is increasingly common for employers to manage the redundancy process using the Settlement Agreement procedure (previously known as Compromise Agreements).  This is a process whereby in return for a payment of compensation the employee agrees not to bring certain claims against the employer, particularly those before an Employment Tribunal.


The key points are:

  • Settlement agreements are legally binding contracts that waive an individual’s rights to make a claim covered by the agreement to an employment tribunal or court.
  • The agreement must be in writing.
  • They usually include some form of payment to the employee and may often include a reference.
  • They are voluntary.
  • They can be offered at any stage of an employment relationship.

If you have received, or are likely to receive, a settlement agreement or simply require more information, please contact Nigel Mills.  It is vital that you receive thorough advice as a Settlement Agreement is a legally binding contract and one that does not come with a fixed scale of payments. Payments will depend on the individual circumstances of each case, so it is vital that you receive good advice before you commit to either making or receiving a payment tax-free.

When considering monetary figures there are some factors to consider:

  • How long has the employee worked for the company.
  • Why employment is terminating.
  • How long it may take to otherwise agree on a dispute.
  • The potential cost of proceeding towards an employment tribunal.

Settlement agreements may also include an employee reference which cannot be changed once it has been agreed, and may well also involve confidentiality clauses stating that the employee will keep the terms of the agreement, the settlement amount and the reasons for the agreement confidential.

With all these factors and more coming into account you can see why both employees and employers need to be mindful of all the risks to either compensate correctly or to ensure that both parties separate as amicably as possible.

Nigel Mills has advised on numerous such agreements across all sectors and levels with fast, efficient, robust advice in plain English.  He is highly experienced in both advising on and drafting settlement agreements as well as, if appropriate, negotiating improved terms.  He is also an experienced employment lawyer. Contact Nigel or his team for an initial discussion to discuss your needs.


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