Settlement Agreements

Settlement agreements offer employers the certainty of a settlement and they also enable you to avoid the cost and time involved in employment tribunal proceedings.

Settlement agreement

If you wish to come to an agreement with an employee in relation to the termination of their contract of employment, this needs to be in a certain form or the agreement will not be effective to stop claims to the employment tribunal. The employee must first have legal advice from a properly qualified advisor, such as a solicitor, as to their employment rights. The employee and the advisor must then sign a settlement agreement and this prevents the employee from bringing claims to the employment tribunal. 

A settlement agreement will nearly always include a termination payment and it will also specify when and how the employment will come to an end.  It may also have terms providing for:

  • a tax indemnity
  • the continuation of employment benefits for a period after the employment terminates
  • a reference
  • restrictive covenants to be imposed or renewed.

There may be other terms.  

Your options

There may be options as to how to structure the financial package contained in the settlement agreement. There may be tax advantages in a settlement. The employee may accept the package or they may decide to try to obtain improved terms of settlement. If a satisfactory agreement is not reached, your employee may consider rejecting the settlement agreement and bringing a claim to the employment tribunal to try to obtain a better settlement. You may be willing to negotiate revised terms or withdraw from discussions.  If no agreement is reached the employment may continue or it may come to an end and the employee will be left to decide whether to bring proceedings.  

Our solicitors can advise your company on all aspects of settlement agreements.

Meet the Settlement Agreements team