Settlement agreements

Settlement agreements allow your employer to “step outside” the usual procedures for dismissing you. But they usually have benefits to you too – like compensation and confidentiality.

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A settlement agreement is a contract where an employee agrees to give up any employment claims against their employer, usually in exchange for compensation.

Employers often use these agreements to lay out the terms under which an employee will leave the company. The employer may also use the agreement to protect themselves, e.g. by adding confidentiality clauses and restrictions on competition.

We’ve been helping professionals protect their rights and their reputation at work for decades.

We have one of the biggest employment law teams in the UK, with offices across the country. We’re experts in getting the best settlements possible for our clients and have experience across a wide range of industries.

We regularly act for senior executives and high net worth individuals, including in complex agreements that include director duties and responsibilities.

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Shah Qureshi

Partner

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How do settlement agreements work?

Your employer will draft the agreement with their legal counsel. For it to be valid, you will need to get independent legal advice on what the agreement means. We can then help you negotiate on the terms, like:

When you will leave
What you will be paid
Whether you have to work a notice period
What property or documents you will need to return
How much your employer will pay for you to get legal advice
What legal claims you will and won’t be able to make if you sign
What information you won’t be allowed to disclose about each other
What restrictions you will need to follow (e.g. not working for a competitor).

Our complete guide on settlement agreements goes further into terms, tax implications, what’s included, and common language used.

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Frequently Asked Questions

What are the benefits of a settlement agreement?

Settlement agreements allow you to settle a dispute out of court. The deal can be confidential and there will be no judgement published on a public register.

Other benefits are:

Agreements can avoid the lengthy process, stress, and cost involved with a protracted formal grievance, complaint, or tribunal claim
If the agreement includes a compensation payment, the full amount can be yours as long as the terms put in place determine this
You and your employer can agree to other terms that a judge has no power to award, such as a positive reference, a payment of your costs, confidentiality and provisions to protect your reputation.

Can you back out of a settlement agreement?

No. Generally speaking you can’t back out of a legally binding settlement agreement. But you can decide not to make the agreement at any point before the document is signed. This shouldn’t affect any future claim you make against your employer.

You may be able to back out of a signed agreement if your employer behaved improperly (putting pressure on or rushing you – but this can be hard to prove).

If you think your settlement agreement may be invalid, speak to us as soon as possible for specialist advice.

Why does my employer want to make a settlement agreement?

Using a settlement agreement can allow your employer to avoid formal disciplinary or redundancy procedures (performance reviews, warnings, etc). It helps them work around ‘exceptional’ cases, save time and money, and also remove the risk of claims for unfair dismissal.

Employers might also use a settlement agreement when an employee is staying with the company but wants written confirmation the dispute has been fully resolved.

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