Settlement Agreements

A settlement agreement is a contract between you and your employer that records agreed terms for ending your employment or bringing a workplace issue to a close, usually including financial terms and a waiver of potential claims relating to your employment and its termination.

The agreement will usually confirm the date on which your employment will terminate and set out how your notice period will be handled. In some cases, you may work it; in others, you may be placed on garden leave or paid in lieu.

Most agreements include some form of financial compensation – often described as an “ex gratia”, compensation or termination payment – and clarify how other payments such as salary, bonus, holiday pay or pension contributions will be handled. The precise terms vary widely, and we can help you understand what you are being offered and (if you would like) how this compares with your entitlements.

The agreement may also address practical and reputational matters; for example, how the departure will be communicated to colleagues and third parties, what form of reference will be provided and whether any private medical cover in place will continue for a period. Where appropriate, we can support clients in shaping internal or external messaging with their employer and ensure that any references are fair and accurate.

You may also be asked to accept ongoing obligations, such as confidentiality clauses (also known as non-disclosure agreements or NDAs) and non-disparagement provisions, and affirm post-termination restrictions in your employment contract. While such provisions are often included as a matter of course, in many cases we can negotiate changes; for example, by limiting the scope or duration of a non-competition clause or ensuring appropriate carve-outs to requested confidentiality provisions.

The proposed settlement agreement may also include warranties for you to confirm – for example, that you haven’t committed misconduct or already accepted a new role – which we will review carefully with you.

A settlement agreement involves waiving your potential statutory employment law claims, and this waiver is only binding if you have taken independent advice from a suitable adviser, such as a solicitor, before agreeing it.

In most cases, therefore, employers will contribute towards the cost of this – we will explain clearly what is and is not covered by this contribution before starting work.

In summary, however, our Next Steps service – which is suitable if you are content with the commercial terms being offered – provides advice on the terms and effects of the proposed settlement agreement. Fees for this service are typically covered by the employer’s contribution if you ultimately sign the agreement.

If you require more detailed advice – for example, as to whether to accept the offer, on the merits of a potential claim or in respect of post-termination restrictions or an equity interest in the business – or substantive support in negotiating improved terms, this will take us longer, and will incur additional fees, which may not be met by your employer (although we are sometimes able to achieve this via negotiation). We will be able to provide clear information about fees and options so that you can make an informed decision before instructing us to start work.

ACAS guidance recommends that employees should be given 10 days to consider a proposed settlement agreement. A shorter timeframe can be challenging in our experience, as while we are often able to provide our advice quickly, if any changes are requested turnaround can sometimes be impacted by employer response times, particularly where an employer is handling multiple redundancies or coordinating with several legal advisers.