settlement agreements from Langleys Solicitors

Settlement Agreements - What do I need to know?

Jan 6th, 2022

Marie Horner, Partner

What is a settlement agreement?

A settlement agreement (formerly known as a compromise agreement) is a legally binding agreement between you and your employer.  It usually provides for a severance payment to be made to you in return for your agreement not to pursue any legal claims against your employer.

What does “without prejudice” mean?

This means that the settlement agreement itself, as well as the negotiations and communications around it, are “off the record” and cannot be shown to a court or tribunal as evidence.  This concept is meant to encourage you and your employer to be able to speak freely during negotiations knowing that anything said in these discussions cannot be held against you.

Once the settlement agreement is signed by you and your employer it becomes “open” and binding meaning that it could be shown to a court or tribunal.  It becomes open even though the settlement agreement will still be marked as “without prejudice”.

Why has my employer proposed a settlement agreement?

Employers propose settlement agreements as a way to terminate your employment on terms mutually agreed with you.  It offers a clean break for both of you and brings your employment relationship to a close on an agreed date.

There are a range of reasons why an employer might choose to offer a settlement agreement.  The employer might be looking to avoid a long, drawn-out process such as performance management or they might want to offer an enhanced payment for making you redundant without a lengthy consultation.  Alternatively, they may have recognised that you have potential claims and want to circumvent the employment tribunal process.

Does the fact that I have been offered a settlement agreement mean I have a claim?

Not necessarily.  Although it is possible that your employer has recognised a potential claim, they might have chosen to propose a settlement agreement to offer you a better termination payment than you would have been entitled to without a settlement agreement.  Your employment solicitor will advise you on any potential claims you might have and whether the amount you have been offered adequately compensates you for giving up those claims.

Why do I need to contact a solicitor?

The law states that a settlement agreement is not valid unless the employee has taken legal advice on the terms before signing it.  Your solicitor is usually required to sign a certificate confirming that you have received legal advice to ensure that your settlement agreement can be recognised in law.  The requirement to take advice cannot be waived under any circumstances.  This is in order to protect you from signing away your legal rights without fully understanding the consequences.  Settlement agreements are complex and usually contain a high volume of legal jargon, so it is extremely important that you obtain professional advice from an employment solicitor to ensure you are clear on the legal effect of the settlement agreement.

A specialist employment solicitor will also consider with you any potential claims you might have, the possible strength of those claims, and how much money you could potentially claim in the employment tribunal.  They will help you to understand if, in all the circumstances, the settlement agreement is a good deal, and if your solicitor advises that the money you are being offered is insufficient, they can negotiate on your behalf to try to secure a fair sum from your employer if that is what you want to do.

What does a settlement agreement cover?

A settlement agreement will usually include details of:

  • Your termination date;
  • Any payments owed to you as a result of the termination of your employment, such as notice pay and holiday pay;
  • Details of any enhanced payment offered in return for you agreeing that you will not bring claims.

It may also include:

  • confidentiality clauses;
  • post-termination covenants (which are promises you agree to keep for a period after your employment has ended);
  • a provision that your employer will provide you with a reference;
  • terms regarding the return of any company property in your possession.

Your solicitor will explain what each clause of the settlement agreement means and check that you understand its implications.

Which legal claims am I surrendering?

Most settlement agreements are drafted to prevent every possible type of claim you could bring against your employer, including employment, contract and personal injury claims.  There are a few very limited exceptions, one of which relates to latent personal injury.  This applies if you develop an injury that you were unaware of at the time of signing the agreement, a common example being a specific type of lung cancer following exposure to asbestos at work.  In general, however, once you have signed the Settlement Agreement you can assume that you won’t be able to bring any type of claim against your employer.

Do I have to sign the settlement agreement?

You do not have to sign the agreement if you are not happy with it.  By not signing the agreement you remain free to pursue any claims you may have against your employer.  However, you will not benefit from the payments proposed by your employer under the settlement agreement, which could well be enhanced payments in comparison to your statutory entitlement.  You will need to weigh up the potential benefits of signing the agreement, and your solicitor will be able to advise you on this.

How much will it cost?

Employers usually contribute between £350 and £750 plus VAT towards your legal fees in relation to settlement agreements.  In a straightforward matter, your employer’s contribution may cover all of your legal fees, and in some cases your employer may increase their contribution towards your legal fees if the matter is more complicated.

At Langleys Solicitors we are transparent about our legal fees and discuss the potential costs with you before you decide to instruct us, and throughout the process.

What should I do next?

If you would like to discuss your settlement agreement with us, you can contact Langleys reception on 01904 683221 to be put through to an available adviser, or alternatively, contact one of our solicitors directly or complete the form through the contact us tab above.

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Marie Horner


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