Settlement Agreements were formerly known as Compromise Agreements.
What is a settlement agreement?
A settlement agreement is a written contract between
you and your employer or former employer. They
are often entered into when termination of an employment contract
occurs eg redundancy, although they are sometimes also used when employment is ongoing.
The main aim of a settlement agreement is to prevent you from bringing legal
claims against your employer relating to your employment and/or its
termination. Usually your employer will agree to pay a sum of money in return for
giving up these rights.
Should I give up my right to make a claim?
This really depends on the contents of the settlement agreement eg are the terms
in the contract right for you to consider giving up the ability to make a legal
claim. We advise you to consider the factors below when making your decision:
- the conditions in which the agreement is offered
- your salary level
- when do you expect to get a comparably paid job
- if you have a claim how strong is your case, and
- the time, effort and potential legal fees involved in pursing any claim(s)
Our solicitors can advise you on any aspect of a settlement agreement and will give
you clear, concise advice on the law and how it affects you in order that you can
deal with this matter appropriately.
What does a standard settlement contract contain?
The contents of a settlement agreement often vary, but many include:
- A breakdown of the sum which will paid in compensation and details of how
this payment will be treated for tax purposes, eg a loss of employment
compensation payment up to the value of £30,000 can be tax free. It should
be noted that if your employer is offering a tax free payment then the settlement
agreement will normally contain an indemnity so that you take on the risk (if any)
of HMRC charging tax on any part of the compensation payment when it is made
- A statement that you agree that the compensation payment is in full settlement
of any claim(s) which have arisen from your employment and/or its termination
and a guarantee that you will not pursue any claims against the
company in the future
- an assurance or promise by you and in some cases by your employer
that the details of the settlement agreement are confidential and
that no unfavourable remarks will be made about either party
- a guarantee by you to keep the company’s business affairs confidential
and/or any restrictions on you after your employment has been terminated, and
- A copy of a mutually agreed reference, eg often only factual, which
the company will give to prospective employers should they request a reference
Independent legal advice
In order for the settlement agreement to be legitimate
you must ensure you get independent legal advice from an employment
law solicitor. They will be able to advise you on the terms and effects
of the settlement agreement on your rights. The solicitor
will also sign a copy of the settlement agreement to declare that
you have taken legal advice. Normally your employer will make a significant
contribution towards the cost of your legal advice. The lowest contribution
they will usually make is in the region of £420 inclusive of VAT.
Find out more about our costs
Justice is not as inaccessible as you might think
Whenever our solicitors advise on this type of contract we endeavour to keep
our charges within the employer’s contribution. Generally our charges
will only exceed the contribution made by your place of work in
cases where extensive negotiation or drafting work is needed. If
our charges are likely to exceed the contribution our solicitors always discuss
and agree this with you before any work is done. Sometimes companies will be willing
to increase their own contribution to cover any excess.
- Our solicitors provide high quality, clear and user friendly advice
- We have the expertise to advise you on all legal issues relevant to your
settlement agreement, and any area of work-related law or claim(s) you
- Our expertise and reputation in this area means that we can
negotiate robustly on your behalf if needed or even litigate a case for
you if an acceptable solution cannot be reached
- Although advice is often given in a face to face meeting it can
be done over the phone, meaning that wherever you live you
can instruct us without having to travel
What do I need to do now?
If you would like one of our solicitors to advise you on a settlement agreement
please contact our helpline now on 0808 129 3320 or complete our
no-obligation online enquiry form and we will get back to