Contracts of employment are different to many other types of contract.

As well as the normal rules about how contracts are created, there is a raft of other employment related rules set down in statute. This is because parliament has recognised that there is an inequality of bargaining power between the respective parties.

Employees are given special protection against rogue employers. There are rules which prohibit discrimination against employees by employers, and there are also rules setting out what are fair reasons for employers to dismiss employees and what processes need to be followed.

As many employers are concerned about being sued if they dismiss employees, they often offer the employee a Settlement Agreement (sometimes known as a Compromise Agreement).

What does a Settlement Agreement usually include?

A Settlement Agreement is a binding contract which sets out the arrangements for an employee leaving their employment.

There are often various different clauses in a Settlement Agreement, dealing with issues including:

  • Termination date
  • Payment of salary and untaken holiday to the termination date
  • Compensation payable to the Employee
  • Tax treatment of the money payable to the Employee
  • Confidentiality
  • Agreement not to sue
  • Return of company property
  • Reference requests

For most employees, losing their job is a worrying time. It is often unexpected and when the employer presents the employee with a Settlement Agreement, they don’t know exactly what it means and how it will affect them. Many employees have never been through anything like this before.

For the Settlement Agreement to be valid, the employee must be independently advised on the contents by a solicitor. Most Settlement Agreements state that the employer will pay for some or all of the employee’s legal fees for getting legal advice.

If you are given a Settlement Agreement by your employer, it is important that you should get advice on the terms by a solicitor that specialises in employment law. A specialist solicitor will be able advise you:

  • Whether you have a valid claim against the employer, and whether the Settlement Agreement provides for sufficient compensation;
  • Whether tax will be payable on the money you receive and if so, who is liable to pay the tax;
  • Specifically what claims you are promising not to sue for; for example, it would not be reasonable to be prevented from suing for personal injury claims that you are not yet aware of – such as asbestosis;
  • If you are to be bound in the future by any requirements of confidentiality or restraint of trade obligations;
  • What you can and cannot say about the Settlement Agreement to other people.

Specialist solicitors may also be able to assist employees to negotiate more advantageous terms for their Settlement Agreements – for example, more compensation, better tax treatment of the compensation, or the inclusion of a reference.

Clear explanations, helpful, friendly and prompt to respond.”

“I was delighted with the whole process. You made a difficult occasion straightforward and I felt empathy which is so important in these situations.”

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If you would like advice on a Settlement Agreement or any other aspect of Employment Law, please contact:

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