Settlement Agreements - Employees

Settlement Agreements - Employees

Settlement agreement are legally binding contracts whereby a current or former employee or worker agrees to waive or settle a claim (typically, all possible claims) against the employer in return for a payment, usually on termination of employment.

Employees may have claims against their employer under statute, under their contract of employment, and under other common law rights such as the law of negligence.

Although common law claims (such as breach of contract or negligence) can be waived or settled by way of any legally binding written or oral contract, certain statutory employment rights and discrimination claims can only be waived or settled by way of ACAS Conciliation or a settlement agreement that meets certain statutory requirements.

There are a number of requirements for a settlement agreement to be legally valid, which include:

  • The agreement must be in writing.
  • The employee or worker must have received legal 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 the statutory rights in question before an employment tribunal.
  • The independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice.
  • The agreement must identify the adviser.

The terms of the agreement will be agreed between the employer and the employee, but importantly the agreement will contain a waiver of the specific claims the employee has agreed to waive. In addition to the termination payment, it is possible to include terms that provide for such things as pension scheme augmentation, continuation of benefits in kind after termination, payment of expenses, purchase of company car, an agreed reference and an announcement.

Termination payments of up to £30,000 can usually be paid without tax being deducted.

Our solicitors at Sills & Betteridge LLP are experts in advising employees in relation to Settlement Agreements, negotiating improved terms if requested and providing advice in relation to the nature and effect of the Agreement in general.  

Should you require advice with regards to a settlement agreement that has been proposed or offered by your employer, then please contact a member of our specialist team using the links below.

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