Settlement Agreements – Frequently Asked Questions


Settlement agreements can be put forward by employers in a range of circumstances. Most commonly, these types of agreements may be presented to employees where there is a potential employment dispute. Employers may also offer a settlement agreement to an employee when they are going through a redundancy process or proposing a potential redundancy.

Whatever the reason is for the settlement offer, a number of questions are likely to arise on the part of an employee; what is a settlement agreement? Can my employer take this approach? Can I use the circumstances leading up to the settlement agreement against my employer in a court or a tribunal? Do I need to obtain legal advice? What are my options as an employee?

David Hession, Employment Law Associate, answers some of the most common questions surrounding settlement agreements.

What Is A Settlement Agreement?

On a basic level a settlement agreement involves an employee compromising or signing away any potential claims they may have against their employer. It may well be the case that an employee does not have any claims against their employer. In this sense, the employer may use the settlement just to make entirely sure that a claim or claims cannot be brought against them.

Settlement agreements can also be offered where there is a potential dispute between the employer and employee. For instance, an employee may have an unfair dismissal or discrimination claim. The employer will therefore use the settlement as a means of preventing a claim (or claims being issued).

Why Sign My Rights Away?

A settlement agreement should include a termination payment or settlement figure. This acts as an incentive for employee to sign up to the terms of the agreement. In some circumstances, it may be possible for the employee to negotiate an increase on their initial offer.

Employees should also try to ensure that the settlement offer is more than they are legally entitled to. Otherwise, an employee may be reluctant to sign their rights away.

When Can A Settlement Agreement Be Offered?

The legislation is quite flexible on this point, meaning that a settlement agreement can be offered by the employer at any stage. It is also open for employees to commence settlement negotiations with their employer at any stage.

Common scenarios may include where an employee is undergoing an absence of performance management process and no longer wants to work for the employer. In this type of situation, the employee could approach the employer with a proposed settlement option.

Can A Settlement Discussion Be Brought Up In Court Or Tribunal?

As a general rule, settlement discussions or negotiations leading to a settlement agreement are protected or without prejudice in nature.

This means that they cannot be brought up before a court or employment tribunal. For example, if your employer was to offer £20,000.00 as a settlement and acknowledged that it has not followed the correct process, this does not mean that you could use this against your employer in court. When conducting settlement negotiations, there are certain rules that an employer should follow. More specifically, an employer should not discriminate against the employee, nor should the employer put undue pressure on the employee to agreement the settlement terms.

This could involve the employer telling the employee that they will be dismissed if they do not agree to the settlement terms. In these circumstances, it may be possible for the employee to raise the employer’s unreasonable conduct in court.

Do I Need To Obtain legal Advice?

It is a legal requirement for an employee to go through the agreement with an independent legal adviser. Typically, the adviser will be an employment solicitor.

If the agreement is not signed off by an independent adviser then it will not be a valid settlement agreement. The law takes a stance that employees should know what they are signing up to before entering into a settlement agreement.

What Are My Options As An Employee?

As an employee, there are three options available:-

  • Sign up to the settlement agreement in its current form; 
  • Go back to the employer and negotiate an increased offer; or    
  • Refuse to sign the agreement.

In the event a settlement agreement is not signed or finalised then the employee will retain their legal rights and will be able to retain potential claims against their employer.

How Can Simpson Millar Help You?

Our employment solicitors have considerable experience when it comes to advising on settlement agreements. From an early stage, we will go through any potential claims that you could have against your employer. We will also advise on the level of compensation that you may be entitled to in the event your claims are successful.          

We are also experienced in negotiating exit and termination packages for employees. This has involved obtaining increased settlement offers for employees. Whilst we cannot guarantee that your employer will increase their initial offer during negotiations, our employment solicitors will fight your corner whilst adopting a supportive approach.      

Our employment lawyers are based in Kingston-upon-Thames, London and Manchester. However, settlement agreement advice is generally not location sensitive so we are experience in dealing with employees wherever they may be based.      

Contact us today on our freephone number or send us a secure message using our online enquiry form.

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