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Employee Settlement Agreement – Everything You Need To Know

Employee Settlement Agreement – Everything You Need To Know

Employee settlement agreements

2020 has been a tumultuous year for employment in the UK. Unemployment levels and redundancies are going up and there is large scale uncertainty surrounding job security due to the impact of Covid-19.

As a result, we know there are millions of people around the UK that are looking for advice on what to do when their employment is coming to an abrupt end. This article could give you the peace of mind you need when it comes to knowing how to act if you have been offered, or want to offer an employee settlement agreement.

What is an Employee Settlement Agreement?

It is a legally binding contract which usually brings the relationship between an employer and an employee to an end on terms agreed by both parties. These agreements are most commonly used in cases of redundancy, breach of contract, or when employee performance issues lead to the termination of employment.

With the right legal support, you can achieve the most favourable, legally binding outcome possible surrounding the terms of your employment termination and any settlement due, which could go a long way to easing the stress of what can be a very difficult time. .

It’s important to know that you have the right to seek legal advice if your employment is due to be terminated for any reason. 

If you are an employee in discussions with your employer regarding a settlement agreement or have already reached a settlement agreement with your employer, then you could benefit from the services of a solicitor.

A solicitor will be able to offer advice on the implications of any settlement on the table and can help you to negotiate the terms included.

At Hattons Law we have a team dedicated to dealing with settlement agreements on behalf of our clients in and around the North West of England. From the simplest to the most complex of cases and we can help you to ensure you reach a settlement that offers the most favourable terms possible.

Click here to discuss your case with Hattons today 

Are You Facing Employment Termination?

Employment termination

Having your employment terminated for any reason is a stressful and worrying time. It’s completely normal to be concerned about your finances, the fairness of the termination and the breakdown in the relationship between you and your employer.

Read on to find out more about what you can do to ensure you’re protected upon the termination of your employment and how to get the best outcome possible for you. 

An employment settlement agreement is a legally binding agreement between an employee and employer that sets out the terms of a severance payment and any obligations due on the termination of their employment.

In most cases, an amount of money agreed by both parties is paid to the employee in return for a completely clean break and severance of their relationship with their employer. This means that no further claims or compensation can be brought by the tribunal in the future after everyone has gone their separate ways.

The process of reviewing the validity, breadth and legality of the reasons given for the termination of employment and arriving at the final settlement figure is where the services of an employee settlement solicitor can come in.

The agreement should be:

  • made in writing
  • clearly outline the dispute in question
  • sets out the terms that both parties agree too
  • drafted by a solicitor
  • specifically state the agreement meets all rules required around settlement agreements

When Should I Contact A Solicitor?

When to contact a solicitor - employment

Jobs are terminated every day and people leave their employment for all manner of reasons all of the time but not everyone who has had their employment terminated will need the services of a solicitor.

If however, you have experienced any of the following circumstances then it could be beneficial to seek the services of an experienced solicitor in such matters.

  • Dismissed without following your company’s grievance policy
  • Employment terms have been breached by the employer
  • You have received a settlement agreement from your employer
  • Dismissed for poor performance without proper performance review procedures
  • Been made redundant without full consultation

If any of the points above apply to you then we recommend you speak to a solicitor at the earliest opportunity to review your case and advise of any settlement agreement that could be due to you.

Find out more about how to agree upon a settlement with your employer

How Does A Solicitor Help?

For any document to be legally binding it needs to be drawn up or certified as valid by a solicitor and you, the employee must have sought independent advice before signing it.

The benefit of working with a solicitor experienced in employment settlement agreements like the team here at Hattons is that they know the law inside out and can spot potential avenues for claims that you may not have considered.

Experience in navigating complex legal processes, spotting areas your employer have overlooked and understanding how to identify potential discrimination against you, can ultimately all add up to a much larger settlement owed to you.

Use qualified and experienced solicitors to:

  1. Ensure the settlement agreed is fair, legal and reflective of the true amount owed to you
  2. Navigate complex legal processes surrounding employment law with ease
  3. Spot areas of discrimination, unfair dismissal and manage the pursuit of these claims effectively
  4. Ensure all agreements reached are legally binding and free from potential repercussions or future claims against their validity.
  5. Check the terms of your employment contract to ensure all clauses are upheld or seek compensation where terms have been breached in the handling on of your termination
  6. Advise of any tax payments due on settlement payments received
  7. Ensure provisions are made for all monies and obligations due to you or lost as a result of your termination including pension contributions, compensatory payments, payment in lieu of notice period, references and bonuses

How Is The Settlement Figure Calculated?

Settlement figure calculations

After all negotiations have taken place and the agreement has been signed by both parties, you will be due an amount of money. The exact amount of money due will depend on the specifics of your case and whether or not tax is due to be deducted.

You can expect to receive a full breakdown of the amount due and any deductions in the settlement agreement received and this is likely to be made up of the following:

  1. You can receive settlement payments of up to £30,000 without any tax deductions should this be a compensatory payment rather than an amount that is contractually due to you.
  2. You can receive a payment for your notice period even if you are not required to work it due to the termination of employment
  3. If you are entitled to bonus or commission payments as part of your standard contract, these should be factored into your settlement sum.
  4. Pension contributions should continue for the period of your notice period, unless otherwise stated in your contract of employment and if you have a final salary pension, you will be entitled to receive an amount of money that reflects any impact to this.

I Have Received A Settlement Figure From My Employer, What Do I Do Now?

When you receive a settlement agreement from your employer, the first thing to do is to review it carefully with a solicitor. The next action you take will depend on a number of factors including; how strong your case it, whether you’re happy with the offer made or if you think you could get more, your current financial situation and how resilient you are to the stress of a potential tribunal claim in comparison to ending the relationship now with the settlement agreement.

Review The Agreement With Your Solicitor

Once you have received your settlement figure and breakdown of how it has been reached, your solicitor will be able to review it and advise if it is fair. They will reach their decision based on how the employer wants to terminate your contract and the terms offered in the settlement and let you know the best course of action which will generally fall into one of the three options below.

The Settlement Proposed Is Unfair

If you or your solicitor think the settlement is unfair, or that you could receive a better outcome from taking your case to a tribunal, you can decline the settlement. If you choose to take your case to tribunal then they will decide the amount that is due to you. You should be aware though that this may end up being less than what was offered by your employer originally and it can be a long and drawn-out process so this avenue should only be pursued if your solicitor thinks you have a strong case and are prepared to extend the time it takes to break all ties with your employer.

Some Amendments Are Needed To The Settlement

If there are areas of the agreement that could be improved upon or have been missed then you can instruct your solicitor to engage in negotiations with your employer in order to make the proposed amendments. This can all be managed out of court.

I’m Happy With My Settlement And Want To Accept It

If you are happy with the settlement proposed then your solicitor will get to work in signing off the settlement agreement as agreed. They will then ensure the amount due to you is paid efficiently. It is not uncommon for your employer to stipulate that the terms of your termination and settlement must remain confidential so you should not discuss the specifics with anyone other than your solicitor and close family members.

Other Things to Consider

Employee settlement agreement terms

Settlement agreements are not just about the lump sum agreed. There are plenty of other important considerations to make to ensure you are in the strongest position possible to seek new employment and continue with the lifestyle you are used to such as:

Medical and Life Insurance

Many companies offer an employee benefits program that includes health insurance, medical cover and life insurance. These benefits are usually valid for the period of your employment but may extend further than this depending on the agreement your employer has in place with the service provider and the terms outlined in your employment contract.

Your solicitor will be able to help you explore if you are entitled to continue enjoying these benefits as part of your settlement agreement.

Restrictive Covenants

Depending on the seniority of your role, you may have extensive restrictive covenants in your terms of employment. These clauses are usually designed to protect the company from employees sharing trade secrets or taking valuable contacts with them when they leave.

An agreement may include allowances for restrictive covenants. Depending on the reasons for the termination of your employment, the original clauses agreed to in your contract may be open for negotiation or become unenforceable as part of the settlement agreement. Similarly, if your employer adds any additional restrictive covenants to your settlement agreement, your solicitor will be able to advise you if these are fair or enforceable based on the specifics of your case.


Tensions can run high in the pursuit of an agreement but this shouldn’t mean you aren’t given a fair reference that is a true reflection of the work you have completed with your former employer. It is therefore a good idea to ensure that an agreed reference is included as part of the settlement agreement with a clause included that means this reference cannot be unlawfully retracted or altered at a future date.

People Also Ask

How Much Do Employee Settlement Agreements Cost?

When you are faced with the loss of your employment, it’s common to be worried about your finances but this shouldn’t be a reason not to pursue a fair settlement from your employer. The law is on your side and your employer is usually required to contribute to the cost of your legal fees.

Your solicitor’s fees will be dependent on the complexity or the settlement agreement and whether or not an agreement can be reached without the need for an employment tribunal.

In some cases legal costs for pursuing employee settlement claims can be funded via spread or deferred payments. When there is a legal case to answer to, we want to protect our clients and will do everything we can to provide the support you need in a way that is affordable so please discuss any concerns you have about funding your legal support when you get in touch and we will do all we can to help you.

Why Is My Employer Asking Me To Sign An Agreement?

When making large scale redundancies, it’s not uncommon for employers to want to protect themselves from future tribunal claims from disgruntled employees, even if they have followed a full and correct redundancy procedure. It’s therefore important to know that a settlement agreement doesn’t automatically mean there is anything to worry about and you don’t have to agree to the one offered if you think it is unfair or missing key considerations for the correct amount of compensation for termination of your employment.

In 2020 for example, COVID-19 pandemic has wreaked havoc on businesses all over the world and employers have been forced to make very difficult decisions regarding employees in order to stay afloat. What’s made this process even more difficult than normal to navigate is the sheer amount of guidance and funding available from the government and the speed at which this information is changing on a monthly basis as the situation with the virus and its impact on our lives continues to evolve. As a result, we’re seeing a large number of employee settlement agreements requested to ensure fair treatment.

Should I Sign My Settlement Agreement?

By signing an employee settlement agreement, both employer and employee are entering a legally binding contract which brings the relationship between them to an end on terms agreed by both parties with the view of no future litigation being brought against them.

If you have been asked to sign a settlement agreement for any reason you are under no pressure to do so and it is in fact a legal requirement for you to get advice from a solicitor or trade union representative before signing.

You should remember that it is important to take full and proper advice because once signed, you will be unable to bring an employment tribunal claim against your employer at a later date. A solicitor experienced in settlement agreements will be able to help you negotiate alternative arrangements if the proposal made is unfair or incomplete in any way but you must keep the terms of your agreement confidential.

Find Out More

If you are an employee in discussion with your employer regarding a settlement agreement, or have already reached a settlement agreement with your employer and would like to have this checked to ensure it’s both legal and as fair as possible, then Hattons can help.

Whether your case is simple or complex, to discuss your settlement agreement or get advice on what to do next please use contact form here or call 01744 744400 to speak to our friendly team

Hattons Solicitors is based in St Helens, Merseyside and the firm has been providing efficient, affordable and high-quality legal services to members of the public and the wider business community since 2001. Professional excellence and quality of work is reinforced by our Law Society Lexcel Accreditation and membership to the Law Society. Our friendly team will always listen to you and your needs before working with you to deliver the approach that best meets your individual needs.

Posted on: 06/Nov/2020 Posted in: Employment Law
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