Settlement Agreements

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.

Compromise Agreements - Employment Law Solicitors

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.

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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 service

  • 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 may have
  • 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 you.


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Linda Stewart - Employment Law Solicitor - Wimbledon, London

Linda Stewart
Partner, Head of Employment Law

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