Settlement agreements for employees

Termination of employment and compensation payments

Sometimes, when an employment relationship is ending, an employer will pay compensation to the affected employee.  This can happen in redundancy situations as well as for other reasons.  In return, the employer will normally insist that the employee signs a settlement agreement.   Usually, in a settlement agreement situation, the employer agrees to pay the employee a sum of money, in return for which the employee agrees to waive all employment-related claims which he or she may have against the employer. In effect, the employer gets the comfort of knowing that they will not face an Employment Tribunal or other claim against them, while the employee benefits from a payment which usually exceeds their contractual or statutory entitlements.  Compensation payments and settlement agreements can also arise when the employment relationship is continuing, but this is more unusual.

Essential advice from an employment lawyer

Because the employee is waiving his or her right to bring any employment-related claims, they must take specialist legal advice before signing a settlement agreement, otherwise the agreement is not valid. 

Confidentiality, benefits and references may all be covered by the settlement agreement

Because settlement agreements are generally entered into at the end of employment, they are often used to regulate matters after the employment has ended.  For example, it is common for settlement agreements to state that the terms of the agreement must be kept confidential, or to restrict what either party can say about the other, even after the termination date.   It is also common to include the wording of any reference to be provided to future employers.  Settlement agreements can also cover employment benefits such as pension schemes, share schemes and bonuses and can be used to affirm post-termination restrictive covenants in the existing contract of employment, or to introduce new restrictions which may affect future employment.  These are all issues to look out for and it is important to ensure that you understand and are comfortable with the various terms of the agreement.

Negotiate the best settlement package for you

We know settlement agreements inside and out. We’ll always take a broad view of your employment situation to assess your rights as well as your bargaining position.  We will advise you on the settlement package you have been offered and how it will affect you.  We’ll do our best to negotiate a settlement package that you are content with and which enables you move forward and focus on the next step in your career.  We’ll also do the technical work, analysing the wording of the agreement and negotiating any changes to ensure it is as fair as possible and that it contains no nasty surprises.  If you have been handed a settlement agreement, or expect to receive one then we will provide you with information and guidance on how to proceed.

Settlement agreement fees

Usually, the employer will pay a contribution towards the employee’s legal fees and we find that this often covers our fees so that there is no cost to you.  If the employer’s contribution is low, we will always try to cover our fees by asking your employer to contribute a sum sufficient to cover the full cost. We will also provide you with a clear indication of our fees at the outset and will keep you updated if for any reason this changes during the course of negotiations so that there are no unexpected costs.

If you have been offered a settlement agreement contact us for a no-obligation initial discussion.