A settlement agreement is a legally binding contract used to resolve employment disputes or bring employment to an end on agreed terms. It typically involves an employee waiving specific legal claims in exchange for compensation or other agreed conditions.
Settlement agreements can be a valuable tool for both employers and employees, allowing disputes to be settled privately, fairly, and efficiently, without the stress and cost of employment tribunal litigation.
A settlement agreement is a written contract between an employer and an employee that usually:
When drafted correctly, a settlement agreement protects both parties and ensures the terms are legally enforceable. A settlement agreement is only legally binding once the employee has received independent legal advice to ensure that they understand the terms and effect upon them of entering into a settlement agreement.
Settlement agreements are often used by employers to:
A well-structured settlement agreement allows employers to:
At Warners Solicitors, our specialist employment team advises employers across Kent, Sevenoaks, London and beyond on drafting and negotiating robust settlement agreements. We can help you:
When Might You Receive a Settlement Agreement?
As an employee, you may be offered a settlement agreement:
You are required to take independent legal advice for the settlement agreement to be binding.
Our employment lawyers will review, consider, and then meet with you to advise you on the terms and effect on you of the settlement agreement, in clear, plain English. In addition, if you require it, they have the experience and expertise to:
Employers usually pay a contribution to legal fees, and in most cases, the employer’s contribution to legal fees would cover our legal fees for providing advice on the terms and effect upon you of a basic settlement agreement. It will not usually cover additional advice or work, but you may request this.
We will provide a fast turnaround service on settlement agreements, where possible, complying with deadlines for the signature of the settlement agreement.
Whether you are an employer or employee contact Warners Solicitors today for strategic, practical guidance tailored to your situation.
No, it is entirely voluntary. The employee should only sign a settlement agreement after taking legal advice and carefully considering the terms offered under the agreement.
“Without prejudice” and ‘protected conversations” are legal avenues to allow employers and employees to discuss potential settlement terms without the risk of these conversations being legally admissible in the courts or employment tribunal.
“Without Prejudice” protection only applies to settlement discussions where there is already a legal dispute between the parties.
“Protected Conversations,” (under Section 111A of the Employment Rights Act 1996) provides for employers to have discussions with employees about ending the employment relationship, even where there is no formal dispute. These conversations are protected from being used in unfair dismissal claims only, the protection does not extend to discrimination claims.
The employment relationship continues unless terminated through other lawful means (e.g. redundancy or dismissal). Employers must not threaten dismissal or act coercively, as this can form the basis of a claim.
If the employee chooses not to sign, their employment will continue, however, depending on the circumstances, the employer may then choose to take other steps in relation to the employment relationship, for example, redundancy or performance management. If the employee has not signed a settlement agreement they will retain the right to bring specific claims in the employment tribunal, for example, an unfair dismissal claim.
Although not a legal requirement, employers typically contribute to the cost of an employee’s legal advice, usually between £500–£1,000 + VAT depending on the complexity of the agreement. This should be specified in the agreement itself.
A properly drafted settlement agreement includes a waiver of most claims, but some claims (e.g. personal injury of which you are not aware at the time or signing or pension rights) may be excluded. If a valid agreement exists, the Employment Tribunal will usually dismiss any claims which have been validly settled under a settlement agreement.
Once signed, the agreement becomes a legally binding contract. A breach may lead to claims for damages or enforcement action. This is why both parties must fully understand and agree to the terms before signing.
