Settlement Agreements - What You Need to Know

On 29th July 2013, the law changed to phase out compromise agreements in favour of the simpler settlement agreements. Business secretary Vince Cable had intended to make it easier for both employers and employees to agree terms if a period of work is coming to an end. In this piece, we will look at settlement agreements – what they are, how they work and how they may be used in a fair and practical way if you are leaving your employment with a company.

Settlement Agreements are legally binding contracts which contain all the terms of a deal arranged between yourself and your employer.

Once the document in question is signed, an employee cannot bring a claim against their employer – including an unfair dismissal claim. For this reason, it’s imperative you use Settlement Agreements in the right way, and taking independent and rational advice from a Settlement Agreement Solicitor who will know and understand the right course of action is imperative. For more information and an explanation of process surrounding a settlement agreement, read our Settlement Agreements page.

How Do Settlement Agreements Work? 

If you are in a position whereby your employer initiates a conversation based on ending your employment relationship, you are entitled to enter in to a ‘settlement agreement discussion’. If at any point during this discussion you disagree, that’s fine…you can never be forced to comply with the terms of a Settlement Agreement and you should go about getting the best resolution possible - safe in the knowledge that your employment law rights will always be retained.

You will need to weigh up what you are offered versus your future loss of earnings until you get a job. If you do have a job to go to, your previous circumstances and the relative strength of your case will inevitably determine the amount you get offered.

Settlement Agreements

With any financial Settlement Agreement, there will need to be an understanding based upon the moral obligations both parties have. A written reference is often the first thing that’s agreed – employers are not legally bound to provide a favourable reference however if it is attached to the Settlement Agreement the terms are different. Also consider bonus payments and other benefits/perks that came with the job. If necessary, they can provide support and leverage for your argument.

Settlement Agreements are usually going to operate with the understanding of a prior process – and a series of discussions which lead up to the end of the employment relationship. During these discussions it is often good practise for employers to let a second person sit in – if for nothing other than to operate as a mediator and progress settlement talks.

Often both parties make proposals and counter proposals during the negotiations of a settlement agreement. A minimum of 10 calendar days should be given to the employee to consider any proposal – for more information on how to act in the event of settlement agreement discussions, the ACAS service has produced the following guide and code of practice agreement.

There are many potential benefits to be had by negotiating a settlement agreement with your employer. It is however vital you receive independent advice – the validity of the agreement needs to meet certain legal requirements, but because it is mandatory many employers will pay for your legal costs. We offer a fixed fee advice system – more information can be obtained by contacting us on 01634 811 118 or emailing our employment law specialist Chris Eastland on