Settlement agreement solicitors

A settlement agreement is a legally binding contract between you and your employer. In it, you agree not to bring the claims it lists, usually in return for a payment. Settlement agreements are often used to end employment on agreed terms, but they can also settle a problem while you stay in your job. They used to be called compromise agreements.

They are voluntary. If one is offered, you do not have to accept it, or the first terms that you are offered. The terms can be negotiated.

Under section 203 of the Employment Rights Act 1996, an agreement not to bring claims such as unfair dismissal is only binding if certain conditions are met. The agreement must be in writing and relate to the particular claims. You must have had advice on its terms and effect from a relevant independent adviser, such as a solicitor holding a current practising certificate, including how it affects your ability to bring an employment tribunal claim. The adviser must be insured, the agreement must name them and it must state that these conditions are met. Similar rules apply when a settlement agreement settles discrimination claims.

Saying the agreement is in 'full and final settlement of all claims' is not enough on its own: it must identify the claims it covers. When you are happy with the agreement, we sign a certificate confirming that you have received our advice.

We go through the whole agreement with you. In particular, we check:

• The payments. How each payment is described. Compensation for losing your job can be paid free of income tax up to £30,000, but notice pay, holiday pay and other earnings are always taxed in the usual way. Agreements often ask you to cover any extra tax that later turns out to be due.
• Notice and holiday pay. That your notice pay and any holiday you have built up are paid correctly.
• Reference. Whether there is an agreed reference, so you know what a future employer will be told.
• Confidentiality. What you can and cannot say after the settlement is concluded. A confidentiality clause cannot stop you making a protected disclosure (also known as whistleblowing).
• Restrictive covenants. Any limits on working for a competitor or approaching clients after you leave, and whether they are reasonable. See our page on restrictive covenants and restraint of trade.
• The claims you give up. Which claims the agreement settles, what those claims might be worth and whether anything is kept back, such as pension rights you have already built up.
• Promises and repayments. Any statements you are asked to confirm, for example that you have not been offered another job. If one turns out to be untrue, you may have to repay the money received under the settlement agreement. If you ask us to, we will also check whether you would owe anything on leaving, such as training costs.
• When you are paid. The payment dates and what happens if your employer does not pay.

Settlement talks are often held on a 'without prejudice' basis. Where there is an existing dispute, statements made in a genuine attempt to settle it cannot usually be used as evidence in a court or tribunal.

A protected conversation, under section 111A of the Employment Rights Act 1996, goes slightly further. Either side can raise ending your employment on agreed terms even where there is no existing dispute, and what is said cannot usually be used as evidence in an ordinary unfair dismissal claim. That protection does not cover claims such as discrimination or whistleblowing. It may also not apply where there has been 'improper behaviour', such as harassment, telling you that the outcome of a process has already been decided, or putting you under undue pressure to decide.

It depends on whether the terms need negotiating. ACAS recommends that you are given at least 10 calendar days to consider the written terms and take advice, unless you and your employer agree otherwise.

Where the terms are acceptable, advice and signing can often be completed quickly, sometimes on the day of your appointment. If we need to negotiate, it takes longer, depending on how quickly your employer responds. Tell us about any deadline when you first get in touch.

Because the agreement cannot settle claims such as unfair dismissal unless you have had independent advice, employers usually contribute towards the cost of that advice. The agreement normally sets out the contribution, and it is usually paid directly to the adviser.

Before we start, we will confirm our fee for your matter and how your employer's contribution applies to it.

Yes. We also act for employers putting settlement agreements in place. Employers can find out more about our employment support for employers and Ansons On Call, our fixed-fee retainer for employment law advice.