Employment settlement agreement FAQs

Entering into a settlement agreement with your employer

If you have come to this page it may be because you need to seek independent legal advice on the terms of a settlement agreement.

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What is a settlement agreement?

A settlement agreement (formerly known as a compromise agreement) is a written agreement, regulated by statute, between an employee and their current or former employer. It is the means by which an employee can waive their rights to bring a claim against an employer in the Employment Tribunal in return for compensation.

Do I have to seek legal advice before I sign a settlement agreement?

Yes. The employee must receive independent legal advice about the terms and effect of the settlement agreement (and the adviser must sign a certificate) for it to be binding. Employers usually contribute towards the employee’s legal fees.

In what circumstances might I be offered a settlement agreement?

In most cases an employee is offered a settlement agreement at the end of the employment relationship; however, they can also be used to vary terms and conditions of employment in an ongoing relationship. For example, offers of voluntary redundancy are often conditional on the parties entering a settlement agreement. Settlement agreements can also be used to resolve difficulties or disputes  with employers and end employment on mutually agreed terms.

How long do I have to make a decision on whether to sign the settlement agreement?

This can vary but best practice, and the ACAS guidance, suggests a minimum of 10 calendar days.

Can I negotiate the terms of my settlement agreement?

Yes, provided both parties (employer and employee) agree to any proposed changes. An employee can seek to negotiate an increase in the amount they are being paid, perhaps because they believe they would be giving up a valuable employment claim, or the terms of the settlement agreement, perhaps to include a reference or internal announcement.

Can I disclose my settlement agreement to my next employer?

Settlement agreements usually include a confidentiality clause which means neither party disclose the fact or content of the agreement to anyone else. The exceptions to this normally include the HMRC, if it is required to by law and the employee’s immediate family. However, the parties can agree to include recruitment agents and future employers in this exception so that they too can be told.

What are the benefits of a settlement agreement?

A settlement agreement provides a clean break for both the employer and employee and compensation for the employee without the risk and cost of litigation. It may avoid the need for an employer to take an employee through a formal procedure which can be time consuming and stressful for both parties. It can also provide a quick and dignified conclusion to an employment relationship which may have irretrievably broken down.

What does “without prejudice” mean?

The label “without prejudice” can be used to enable parties to have a full and frank discussion about settling an existing dispute without fear of what is said later being used in a court or tribunal if the settlement discussions break down.

If there is no dispute, an employer may start a (“protected”) conversation about offering a settlement agreement under section 111A Employment Rights Act 1996. This may prevent the conversation or correspondence later being used as evidence in an unfair dismissal claim.

This protection may be lost if an employer acts inappropriately.

What’s an “agreed reference”?

The parties agree on the wording for any subsequent reference in advance and as part of the terms of the settlement agreement. This often appears in a schedule to the settlement agreement and is usually factual – e.g. name, role and dates of employment.

Contact an employment solicitor

If you want legal advice about a settlement agreement, please contact a member of our team below or call 0800 915 9354. Clarke Willmott has employment specialists in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.