10 Things You Need to Know About Your Settlement Agreement

You’ve been handed a settlement agreement from your employer and been told to get your own settlement agreement solicitor to sign it off. You should look at what a settlement agreement is, and what the package ought to include and what your options and next steps are.

In this guide on Settlement Agreements, we cover 10 things you need to know about the agreements.

1. They’re not just for dismissal and terminations

While it is true to say that most settlement agreements will terminate your employment, not all do.

It may be that you have raised a grievance but that your employment will continue, and that you are receiving a financial settlement in respect of your grievance or that they want to keep it confidential.

2. They used to be called Compromise Agreements

In 2013, the named of the agreements changed from Compromise Agreements to Settlement Agreements. The change was to reflect the fact that they are used to settle claims and is covered more on our page about compromise agreements.

However, they do remain a compromise as well. Signing one is often a compromise for both parties, but particularly the employee. It might be that you would get more at an Employment Tribunal but a settlement agreement shortcuts the procedure, the time, the stress and the cost of going to a Tribunal, and you get payment within a short period of time.

3. They can give more flexible solutions and outcomes than a Tribunal.

Settlement Agreements are not just about the money though. They can also include things that a tribunal would never be able to order.

When you go to a Tribunal, an unfair dismissal does not get wiped clean; you simply get a decision saying it was unfair. A settlement agreement means that you don’t get that negative record.

You can also agree things like a public apology, an agreed reference and agreed announcements both internal and external.

4. Payments can be tax free

As covered on this page in more detail, certain payments under settlement agreements can be made tax free.

The law allows up to £30,000 of compensation for termination to be paid tax-free. It is important that it is genuine compensation though and not related to notice pay or any other contractual benefits.

5. Legal Advice on Settlement Agreements is mandatory

The law states that employees must receive advice from an independent legal advisor, who can be a solicitor a barrister or certain approved trade union representatives or advice centres.

This is simply to ensure that you get what you deserve and the employer does not try to pay you small amounts for major breaches of employment law.

6. They are “without prejudice” until signed

This means that there is no admission of liability simply by producing and discussing a settlement agreement. They are only binding on both parties once both parties sign.

This also means that discussions surrounding the agreement and negotiations on it can only be shown to an Employment Tribunal if there is a signed agreement and a breach of that. You cannot show it to the tribunal as “evidence” of wrongdoing or guilt.

7. It is the entire agreement between the parties

The Entire Agreement clause in a settlement agreement is usually towards the back of the agreement and can be missed.

The clause will say that the agreement represents the entire agreement and understanding of the parties, and will specifically exclude any representations – such as conversations or emails.

You only get what is written in the agreement.

This means that if HR promised you an all expenses paid trip around the world, but that is not written in the agreement, then you will not get it.

8. It’s not quite a ‘gagging order’ but will include confidentiality clauses

You will have read in the ‘papers about “gagging orders” that some celebrities and very rich business people use. Settlement Agreements are very similar.

They will usually include terms to stop you from discussing the terms, existence and circumstances of the settlement agreement with others. There will also usually be confidentiality provisions, ensuring you do not disclose company confidential information.

However, they should not prevent you from “whistleblowing” or making what is called a protected disclosure in public interest areas, or for reporting criminal matters.

9. Restrictive Covenants can be included, but…

Restrictive Covenants are terms which usually stop you from trying to take customers away from your employer. They are often found in employment contracts, particularly for senior employees and directors.

However, if they are not in your contract of employment then you should resist new ones being included in your settlement agreement.

10. They settle all possible claims now and in the future

A Settlement Agreement is a waiver by you of all and any claims against the Employer. This means that once signed, you cannot sue your employer for any types of claims, including future claims.

There’s only three types of claims which can still be started:

1. A claim to enforce the settlement agreement
2. Claims for future (but unknown) personal injury
3. Claims for accrued pension rights