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Employment Settlement Agreements

Posted on 25th January 2024 in Employment

Posted by

Mai Mbye

Employment Settlement Agreements

In the wake of the upsetting news of mass redundancies at Tata Steel, the dynamics of employment settlement agreements have gained heightened relevance. Facing redundancy is always a difficult time, and understanding the nuances of settlement agreements can be challenging. You may have a number of questions about what to do next and how to ensure you get the best deal. We set out below the answers to some frequently asked questions; if you need help or advice on a particular situation then our specialist employment lawyers would be happy to help.


What is a settlement agreement and when is it used?

Settlement agreements are legally binding contracts designed to set out the terms and conditions agreed between an employer and an employee when bringing the employment relationship to a mutual close. The purpose of a settlement agreement is to resolve any disputes and settle potential future employment tribunal claims or claims relating to other court proceedings.

What terms can be found in a Settlement Agreement?

You can expect to find different clauses within a settlement agreement however a typical agreement will contain the following:

·      Breakdown of payments that will be made to the employee as a result of the employment relationship ending.

·      Confirmation of who will be responsible for legal fees and the limit for this.

·      Information relating to the handling of company property and confidential information after termination.

·      Any factual references or company announcements that will be made.

·      If applicable, details of garden leave and obligations during such period.

What are the legal requirements for a Settlement Agreement?

For a settlement agreement to be valid it must satisfy six conditions:

·      The agreement must be in writing

·      The agreement must relate to a particular complaint or proceedings.

·      The employee must have advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue that complaint or proceedings before an employment tribunal or other court.

·      The independent adviser must have a current contact of insurance or professional indemnity insurance covering the risk of a claim by the employee in respect of loss arising from that advice.

·      The agreement must state the statutory provisions regulating settlement agreements are satisfied.

How long should you be given to consider the terms of a Settlement Agreement?

The employee should be provided a reasonable amount of time to consider an offer of a settlement agreement. The ACAS Code of Practice states that a minimum period of at least 10 calendar days should be given to consider the settlement agreement proposal and obtain legal advice. The timescale may vary depending on the circumstances of the case but generally, 10 calendar days is the minimum period that is required.

Is there a need to take legal advice and how much will this cost?

Legally, an employee who has been offered a settlement agreement must take independent legal advice before the agreement is binding. After obtaining legal advice, the adviser will usually provide a signed adviser’s certificate confirming that advice was given.

In terms of the costs associated with obtaining legal advice, this will usually be covered by the employer who will normally confirm from the outset how much they can contribute. In some instances, the amount set by the employer may not cover the cost of the legal advice however there may be scope for them to increase the amount offered or in some cases, the employee may decide to cover the additional balance.

Am I being offered enough? Can I get any more money?

Ultimately a settlement is a negotiation between an employer and an employee and there is no right or wrong figure. The circumstances in which the settlement agreement is being offered will be key; if you need advice on your legal position, including the strength of any legal claim you may have, our lawyers would be happy to advise and, if you wish, to represent you in negotiations.

Should you sign a Settlement Agreement?

Before signing an agreement, it is important to carefully review the terms and ensure they are fully understood. Employees do not have to accept what has been offered, they are free to enter into negotiations with their employers (whether it be for a higher settlement pay-out or an agreed reference).

An employee is under no legal obligation to sign a settlement agreement and employers are prohibited from forcing this. Our specialist employment lawyers can provide advice on whether the settlement offered is sensible and what will be the best strategy to adopt to ensure you receive the highest figure possible. 

What if an agreement cannot be reached?

In the event that a settlement agreement cannot be finalised between the parties, it is important to know what the likely implications of this will be and where you stand in terms of the existing employment relationship. We recommend obtaining specialist employment advice about the situation.

When does a Settlement Agreement become legally binding?

Once the terms have been agreed between the parties, the agreement will need to be signed and dated. At that point, the agreement becomes a legally binding document.

Therefore, it is important to ensure you are happy with the terms before signing.

Can a Tribunal claim still be brought after signing?

In most cases, it will not be possible to bring a claim after entering into a settlement agreement. Certain claims can be brought such as claims to enforce the terms of the agreement, claims relating to accrued pension rights and/or personal injury.

What should you do when a settlement agreement is offered?

If you have been offered a settlement agreement by your employer, it is important that you obtain independent legal advice promptly. Our dedicated team of employment lawyers will be happy to assist you. They have over 20 years’ experience in dealing with issues relating to settlement agreements (ranging from the very simple to the much more complex agreements involving senior employees and the transfer of shares).

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