The Employers’ Guide to Settlement Agreements

1. What is a Settlement Agreement?
2. Do employers need legal advice for a Settlement Agreement?
3. When should an employer offer a Settlement Agreement?
4. How is a Settlement Agreement different to a Compromise Agreement?
5. How to approach a Settlement Agreement discussion with an employee
6. Is there an alternative to a Settlement Agreement?
7. When should you offer a Settlement Agreement to an employee?
8. Can an employee request a Settlement Agreement?
9. Does your employee have to accept termination in this way and on the terms given?
10. Can your employee refer to the terms of your Settlement Agreement if they reject it?
11. Can you threaten to dismiss your employee if they do not accept the Settlement Agreement?
12. Can you present a Settlement Agreement to anyone else at your business other than an employee?
13. Your employee has asked for a Settlement Agreement. What should you do?
14. Why do you and your employee need separate solicitors?
15. When is it risky to present a Settlement Agreement?
16. Why and when should you use Settlement Agreements?
17. How do you calculate a Settlement Agreement?
18. Settlement Agreement – how much are the usual payments?
19. What should employers include in a Settlement Agreement & how should it be structured?
20. Does a Settlement Agreement need to be in writing?
21. What is not allowed under a Settlement Agreement?
22. Who prepares a Settlement Agreement?
23. How do I write a Settlement Agreement letter?
24. How do you calculate a Settlement Agreement?
25. Can an employer do a Settlement Agreement without a solicitor?
26. Do employers have to pay legal fees for Settlement Agreements?
27. Are there any pitfalls to a Settlement Agreement for employers and how can they be avoided?
28. Can an employee sue an ex-employer after signing a Settlement Agreement?
29. Am I obliged to provide a reference for the employee?
30. Post-termination covenants
31. Are Settlement Agreements confidential?
32. Settlement Agreement – how much will it cost?
33. Can an employer pull out of a Settlement Agreement?
34. How long does an employer have to respond to a Settlement Agreement?
35. When will your employee receive their money?
36. What service will Martin Searle Solicitors provide?

What is a Settlement Agreement?

A Settlement Agreement (formerly known as a Compromise Agreement) is a legally binding agreement between you and your employee. It is usual for you to provide a severance payment in return for your employee’s agreement not to pursue any claims in a Tribunal or a Court.

However, Settlement Agreements can also be used to reach a final resolution of a workplace issue without ending the employment relationship. For example, resolving a dispute over holiday pay.

The main benefit of employers using a Settlement Agreement is that the circumstances leading to your employee’s contract being terminated and/or the terms and payment proposed may remain confidential.

A Settlement Agreement is a lengthy document that protects your business in relation to a number of workplace scenarios. These range from preventing your employee from making disparaging remarks to reaffirming their post-termination covenants.

Once the Settlement Agreement has been signed, you will also have peace of mind that your employee cannot bring any claims against you in a Tribunal or Court unless you have misrepresented the reasons for termination. An example is advising an employee that their job is at risk due to restructuring, when it really isn’t.

Do employers need legal advice for a Settlement Agreement?

No. Employers don’t need legal advice for a Settlement Agreement.

However, because a Settlement Agreement is a binding contract and usually involves an employee giving up the right to bring claims in a tribunal or court, seeking legal advice and guidance as an employer is strongly advisable. Professional advice helps ensure the agreement:

• Meets the statutory requirements for validity
• Accurately reflects the terms you intend to agree
• Reduces the risk of misunderstandings, enforceability issues, or future disputes
• Does not result in claims of victimisation or unfair treatment

While templates and guidance can be helpful, they are not a substitute for legal advice if you are unsure about any aspect of the agreement. In practice, many employers seek legal advice not because the law requires it, but because it helps protect the business and provides confidence that the agreement will achieve a clean and final outcome.

It is also important to note that, although employers don’t require legal advice for a Settlement Agreement, the agreement will only be legally binding if the employee has received independent legal advice on its terms and effect before signing.

When should an employer offer a Settlement Agreement?

An employer should consider offering a Settlement Agreement where there is an ongoing workplace issue such as a performance or conduct concern, a breakdown in the working relationship, a potential redundancy situation, or a dispute that risks escalating into a formal grievance or claim. They can be offered at any point during the employment relationship.

Employers commonly use Settlement Agreements when there is a desire to bring matters to a swift, confidential and certain conclusion, without the time, cost or risk of formal procedures or litigation. And in some cases, a Settlement Agreement can be offered by an employer to resolve a specific issue without ending the employment relationship.

As an employer it is important to approach Settlement Agreements carefully. If they are used inappropriately – for example, to bypass proper procedures where no genuine dispute exists – this can undermine your position if the agreement is not accepted.

Employers should also be aware that discussions about Settlement Agreements are often protected as “without prejudice” or may fall within the statutory rules on protected conversations, provided the correct conditions are met. Taking expert advice and guidance from an employment law solicitor at an early stage can help ensure the timing and approach are handled correctly.

How is a Settlement Agreement different to a Compromise Agreement?

Before 29th July 2013, Settlement Agreements were known as Compromise Agreements.

In practice, there is little difference between a Compromise Agreement and a Settlement Agreement. However, under the terms of the new Settlement Agreements, discussions about the offer of such an Agreement cannot be used in an ordinary unfair dismissal claim unless the employer has engaged in improper behaviour such as undue pressure to accept.

How to approach a Settlement Agreement discussion with an employee

Once you have decided to discuss the possibility of offering a Settlement Agreement to an employee to terminate their employment, it is important to seek professional advice beforehand.

An Employment Law solicitor should be able to advise you as to how to approach the discussion, the possible outcomes and issues you may face, and the likely costs of offering a Settlement Agreement.

Whilst you do not have to allow an employee to bring a colleague or trade union official with them, it is often sensible to do so. You should also make sure that you are accompanied by another manager or an HR professional so that you have a witness if you need one.

You should ensure that your conversation with your employee is a protected one, by stating that the meeting is a protected conversation under section 111A of the Employment Rights Act, and that it is also being conducted on a Without Prejudice basis. This will ensure that the conversation won’t be part of any future legal proceedings. It is important to note that if discrimination is present, the conversation will not necessarily be protected.

Is there an alternative to a Settlement Agreement?

Yes. There are several alternatives. A Settlement Agreement is not the only way to resolve workplace issues or bring an employment relationship to an end. In many cases, employers may choose to follow a formal process instead.

Alternatives to a Settlement Agreement can include managing the issue through disciplinary, capability or performance procedures, addressing concerns via the grievance process, or progressing a redundancy process where appropriate. These routes may be suitable where the issue can be resolved internally, or where you are confident that a fair and lawful procedure will achieve the outcome you need.

However, formal processes can be time consuming and may increase the risk of disputes, grievances or claims if they are not handled carefully. This is why some employers prefer a Settlement Agreement, particularly where there is a breakdown in trust, a desire for confidentiality, or a need for certainty and finality.

In some situations, early informal discussions may also help resolve matters without entering into a Settlement Agreement or formal process. The most appropriate approach will depend on the circumstances, the level of risk, and the outcome you are seeking for your business.

When should you offer a Settlement Agreement to an employee?

A Settlement Agreement is usually used to terminate employment. Employers often offer a Settlement Agreement as an alternative to both parties going through other, more lengthy procedures, for example, a Capability Process or a Fair Redundancy Process. This allows the employee to accept a Settlement Agreement, bringing the employment to a swift conclusion and compensating the employee for the loss of their employment.

It is important to consult an Employment Law solicitor to determine what constitutes fair compensation and to draft the terms of the Settlement Agreement.

Can an employee request a Settlement Agreement?

Whilst employers are often the ones to offer Settlement Agreements to an employee, it is possible to request one from your employer. You may want to do this when the employee feels they are being managed out of the workplace.

One example would be an employer setting unreasonable performance targets for their employees. Whilst in this situation, it may be possible for the employee to claim constructive unfair dismissal against the employer, it may be easier for the employee to request a Settlement Agreement as a mutually beneficial way to settle the dispute.

Does your employee have to accept termination in this way and on the terms given?

Your employee may decline a Settlement Agreement because they do not wish to resolve their contract termination this way. They may also turn it down if the Settlement Agreement compensation offered is insufficient.

The safest way to proceed with a Settlement Agreement is when your employee has decided that it is the best outcome. If the Settlement Agreement is your suggestion, then you must ensure that your employee is given a range of options. These include placing them on a performance review, disciplining them, or going through a restructuring procedure.

Avoid situations where your employee may argue that they had no choice but to sign the Settlement Agreement because their dismissal was a foregone conclusion. As previously mentioned, ‘without prejudice’ correspondence (such as a Settlement Agreement letter) and any relevant off-the-record conversations could be used to illustrate that a later dismissal is unfair or that this treatment is part of a series of acts of discrimination.

Where a performance review, disciplinary hearing, or restructuring procedure has not already started or been completed, you need to make clear that the process will commence or continue while negotiations regarding the Settlement Agreement are taking place. Make it clear they will stop only when an agreement has been reached and signed by both parties.

Can your employee refer to the terms of your Settlement Agreement if they reject it?

If there is the potential for your employee to make any type of discrimination claim due to a “protected characteristic”, or any claims for automatic unfair dismissal due, for instance, to raising health and safety issues or whistleblowing, then the details of such “off the record” conversations you may have had with your employee, and any relating documents, could be shown to an Employment Tribunal.

For example, if you presented a Settlement Agreement to an older employee to encourage them to retire, or to an employee who told you she was pregnant, then all of your discussions would be admissible at Tribunal if they pursued a discrimination claim.

Some HR Managers have been calling the conversations surrounding the provision of a Settlement Agreement “protected conversations” when this status rarely exists and only in a very narrow set of circumstances.

These conversations will also be part of the evidence used against you at Tribunal if you have been guilty of “improper conduct”. Improper conduct covers a number of situations, including placing undue pressure on your employee, such as:

• All forms of victimisation
• Bullying, harassment and intimidation
• Not providing a reasonable length of time for your employee to consider your Settlement Agreement offer – Acas recommends 10 calendar days

Can you threaten to dismiss your employee if they do not accept the Settlement Agreement?

If your employee rejects your Settlement Agreement terms and you threaten to dismiss them before the disciplinary process, this will constitute improper behaviour and will almost certainly result in this evidence being used against you at an Employment Tribunal.

In this situation, your employee is entitled to raise a grievance about your behaviour because you have caused trust and confidence to break down. If not upheld, this could result in your employee’s resignation and a subsequent claim for constructive unfair dismissal.

Can you present a Settlement Agreement to anyone else at your business other than an employee?

Settlement Agreements can be offered to anyone who may be able to bring a claim in the Employment Tribunal. For instance, a worker who has a complaint about holiday pay or an unsuccessful job applicant who feels they were discriminated against at a job interview.

Your employee has asked for a Settlement Agreement. What should you do?

In some situations, an employee may request a clean break and suggest a Settlement Agreement. This is usually when the relationship of trust and confidence has broken down. An example would be when their grievance has not been upheld, or when you have recently disciplined an employee and they are unhappy with the penalty. You need to consider whether this would be beneficial to your business, but you do not have to accept it.

Why do you and your employee need separate solicitors?

Each potential dismissal will have its own set of difficult issues. Although Acas provide a template Settlement Agreement, it is your solicitor’s duty to draft a Settlement Agreement that takes into consideration the individual circumstances in relation to each termination. Therefore, it is essential to hire an experienced Settlement Agreement solicitor for employers to ensure a smooth parting of ways while reducing the risk of an ongoing dispute or litigation.

Your employee can only waive their rights to bring an employment claim which is recognised in law if they have their own solicitor or a certified trade union or adviser to sign off the Settlement Agreement.

When is it risky to offer a Settlement Agreement?

There are situations in which presenting a Settlement Agreement would be dangerous. For example, if you present one prematurely, which your employee would consider to be “out of the blue,” because if your employee refuses to accept it, the relationship of trust and confidence is likely to have been severely eroded.

You risk all off-the-record discussions and ‘without prejudice’ correspondence concerning the Settlement Agreement being raised in a formal grievance against the company. You also risk this ‘without prejudice’ documentation being presented to a Tribunal or Court. Settlement Agreements will only guarantee “secret” or “protected” conversations in a narrow set of circumstances, where your employee could only bring an ordinary unfair dismissal claim against your company.

If your employee alleges that the provision of a Settlement Agreement is a discriminatory act, e.g., the bullying of a woman employee by saying “take this or else”, then these conversations and documents will not have this protection. Also, many other types of claims would result in an automatic unfair dismissal claim, such as whistleblowing or reporting a health and safety issue.

For more information, you can refer to the Acas Guidance on Settlement Agreements. This also sets out examples of inappropriate behaviour which would entitle an employee to refer to the conversations and any supporting documents. For example, using undue pressure by not giving the employee sufficient time to consider the terms. Acas recommends 10 calendar days.

Why and when should you use Settlement Agreements?

You may wish to provide a Settlement Agreement in a situation where you have mutually agreed severance terms with your employee. The Settlement Agreement and the amounts involved will provide a clean break with no opportunity for your employee to take you to Court or a Tribunal for more money.

In addition, there are a wide range of scenarios in which Settlement Agreements might be given. These include situations where you might not want to follow a potentially long, drawn-out process, such as a full performance/capability review or a full restructuring process, before being able to terminate. However, we would recommend that you have at least started off the process by advising your employee that they are being placed on a performance review, or that their job is at risk.

Where there are ongoing issues, such as alleged acts of discrimination or where your employee has raised a grievance which you have not felt able to uphold, you may feel that trust and confidence have completely broken down.

It may be in everyone’s interest to terminate on mutually agreeable terms. It is advisable to seek legal advice before providing a Settlement Agreement. This may be presented either face-to-face or using a Settlement Agreement letter in these types of situations to ensure that this does not expose your company to an increased risk of litigation.

How do you calculate a Settlement Agreement?

There is no universally accepted formula for calculating how much an employer should offer their employee in a Settlement Agreement, nor how much an employee should ask for. However, this should honour all contractual payments such as notice and accrued holiday pay and reflect what the compensation that a person might receive if successful in bringing claims at an Employment Tribunal. If there are performance issues it should reflect the time it would take to go through a fair process. But essentially, a Settlement Agreement is an agreement between two parties and it is in the employer and employee’s interests to reach a figure that works for both.

This is why it is important to instruct an expert Employment Law solicitor to assess the circumstances in which the Settlement Agreement is being offered, assess the relevant positions of the two parties and can negotiate the best possible deal for you.

Settlement Agreement – how much are the usual payments?

Compensation for loss of office

The Settlement Agreement will set out the full breakdown of the payment amounts due to the employee, and whether any sums will be paid free of tax. A payment of up to £30,000 compensation can be paid without tax being deducted if it is an ex-gratia payment (compensatory rather than contractual payment). See also Tax on Settlement Agreements Factsheet.

Notice payment

The Settlement Agreement will deal with your employee’s notice payment if it is not going to be worked. In April 2018, new tax rules took effect to ensure that all payments in lieu of notice (PILONs) are subject to income tax and National Insurance contributions in full.

Your solicitor will check your employee’s contract before drafting the Settlement Agreement to make sure that the sums you present to your employee are correct and tax-efficient. As the Settlement Agreement requires your employee to provide you with a tax indemnity, the sums offered must comply with tax law.

Bonus and commission

If your employee is due bonuses or commission, then the amounts owed should be set out in the Settlement Agreement. Your solicitor should check your employee’s contract to ensure all contractual bonuses and commission are paid in full.

However, if the contract refers to discretionary bonuses, your solicitor will advise you if there is a legal obligation to pay additional bonuses and whether they need to be pro-rated to reflect the termination date.

Pension

Your solicitor will tell you if you have a contractual obligation to continue to pay company pension contributions, particularly during the notice period, if it is to be paid in lieu. You may be able to reach an agreement with your employee in relation to a lump sum of money being paid directly into their pension as part of the overall settlement. Your employee could then benefit from this being treated as a further tax-free payment, subject to the terms of the pension scheme.

Medical and life insurance

Some schemes allow your employee to remain in the company scheme for the period up to which you have paid. Other schemes require this benefit to terminate on the last day of employment. However, it is always a good idea to advise your employee to approach the insurer directly to find out whether enhanced terms will be provided if the individual remains in the scheme after their contract has terminated, provided there is no break. Your employee can explore this before the termination date.

What should employers include in a Settlement Agreement & how should it be structured?

The precise contents of a Settlement Agreement will depend on the nature of the agreement, but generally, Settlement Agreements will cover the following things:

• The date on which the employment will terminate
• The outstanding salary, bonus, commission and holiday pay due to the employee
• The value of the termination payment offered to the employee
• Confidentiality clauses protecting the reasons for terminating the employment, and the fact and terms of the Settlement Agreement
• A ‘non-derogatory’ clause which prevents both parties from making derogatory comments about each other
• A commitment from the employer to pay the employee’s legal fees up to a certain amount
• A clause confirming that the employee agrees to waive all and any claims they may have arising out of their employment and the termination of their employment
• Acknowledgement of the employee’s right to a specific form of reference after the termination of employment
• A clause confirming that the employee must receive independent legal advice

An independent legal adviser must sign off a Settlement Agreement in writing and relate to a ‘particular complaint’ or ‘particular proceedings’ regarding the nature of the situation that has led to the Settlement Agreement being offered.

Does a Settlement Agreement need to be in writing?

A Settlement Agreement must be in writing to be legally valid.

Under UK law, an agreement that seeks to waive an employee’s statutory employment rights will only be enforceable if it meets specific legal conditions. One of those conditions is that the Settlement Agreement is set out in a written document. Verbal agreements, informal emails, or side understandings will not provide the legal protection employers are usually seeking.

However, for a Settlement Agreement to be legally binding and to prevent an employee from bringing statutory employment claims in a tribunal, it must meet specific legal requirements set out in Section 203 of the Employment Rights Act 1996.

These requirements are strict. If they are not followed, the agreement may not provide the protection your business expects. A valid Settlement Agreement must:

• Be in writing – verbal agreements or informal email exchanges are not enough.
• Identify the particular complaints or proceedings being settled – the claims must be clearly set out; blanket waivers are not valid.
• Confirm the employee has received independent legal advice from a qualified adviser on the terms of the agreement, its effect, and how it impacts their ability to bring claims.
• Ensure the adviser has appropriate insurance to cover the advice given.
• Name the employee’s legal adviser within the agreement.
• State that the statutory conditions required have been met.

What is not allowed under a Settlement Agreement?

There are certain terms that are not allowed under a Settlement Agreement.

While a Settlement Agreement can be used to bring most employment claims to an end, it cannot lawfully cover everything and there are clear limits on what is allowed. In particular, a Settlement Agreement cannot:

• Waive unknown future personal injury claims – an employee cannot give up the right to claim for an injury they were unaware of at the time of signing.
• Waive accrued pension rights – benefits already built up under a pension scheme cannot be signed away.
• Remove statutory consultation rights – obligations around collective redundancy consultation, TUPE information and consultation, or entitlement to statutory payments such as SSP or SMP cannot be contracted out of.
• Prevent whistleblowing or protected disclosures – any clause seeking to stop an employee from reporting wrongdoing, criminal activity, discrimination or harassment will be unenforceable.
• Prevent cooperation with regulators or law enforcement – employers cannot restrict an employee’s legal right to engage with external bodies.
• Waive claims that have not been properly identified – for a waiver to be valid, the specific claims being settled must be clearly listed; blanket waivers are not allowed.
• Override statutory requirements for a valid agreement – if the legal conditions are not met (for example, if the employee has not received independent legal advice), the agreement cannot prevent statutory claims.

Confidentiality and non-derogatory clauses are common, but they must be drafted carefully. They cannot be used to silence whistleblowing or restrict lawful disclosures.

These limits matter. Including terms that are not legally allowed can undermine the agreement and expose the business to unnecessary risk.

Who prepares a Settlement Agreement?

In most cases, a Settlement Agreement is prepared by the employer or the employer’s legal advisers.

Because Settlement Agreements are technical legal documents designed to protect your business from future claims, they are usually prepared by employment lawyers who understand the statutory requirements and the risks involved. This helps ensure the agreement is enforceable, properly structured, and tailored to the circumstances.

Although an employee may suggest amendments through their own adviser, it is uncommon for the employee to draft the agreement themselves. From an employer’s perspective, preparing the agreement allows you to control the wording, scope of claims being waived, and any post termination obligations such as confidentiality or restrictive covenants.

How do I write a Settlement Agreement letter?

Acas offer a range of Settlement Agreement letter templates that can be used depending on the nature of the situation. It can be valuable to ask an expert Employment Law solicitor to review the letter and ensure it is legally correct and that your discussions will be protected conversations under Section 111 of the Employment Rights Act.

How do you calculate a Settlement Agreement?

Your solicitor will advise you as to a reasonable settlement for your employee in the Settlement Agreement terms. How much this will cost depends on the circumstances leading to your wish to terminate, the terms of your employee’s contract, and any potential claims your employee may have against you.

Your solicitor will tell you if your employee would have a strong claim against you were they to take their case to an Employment Tribunal or a Court. They will calculate how much your employee might get if they were to pursue their claim in a Tribunal, compared to the Settlement Agreement amounts you are presenting. This will include advising as to the statutory cap on unfair dismissals.

If your employee’s solicitor advises that the money provided is insufficient, then your solicitor will advise you and negotiate on your behalf to ensure that the amounts presented are not unrealistically high.

If you have carried out all fair disciplinary/grievance procedures before providing the Settlement Agreement, then you are in a much better position to withdraw the Settlement Agreement if the sums that your employee’s solicitor is demanding are unrealistic. This is why you should seek specialist employment legal advice before embarking on the Settlement Agreement route.

Can an employer do a Settlement Agreement without a solicitor?

Yes. An employer can prepare and enter into a Settlement Agreement without using a solicitor. There is no legal requirement for you as the employer to take legal advice.

However, Settlement Agreements are technical legal documents designed to prevent future claims. If the agreement is drafted incorrectly, fails to meet statutory requirements, or does not properly identify the claims being settled, it may be unenforceable, leaving an employer exposed to tribunal or court proceedings despite having made a settlement payment.

For this reason, many employers do not choose to do a Settlement Agreement without a solicitor. They take expert legal advice to ensure the agreement is valid, comprehensive and fit for purpose. Legal input can also help manage risk around confidentiality, tax treatment, post-termination obligations and the circumstances in which the agreement is offered.

It is important to note that, as an employer, regardless of whether you take legal advice or not, a Settlement Agreement will only be legally binding if your employee receives independent legal advice on its terms and effect before signing.

Do employers have to pay legal fees for Settlement Agreements?

When entering into a Settlement Agreement, the employee is required to get independent legal advice on its terms and effects. While the employer is not obligated to pay for that advice, it is advised that they do so, as it is in the employer’s interest that the agreement be legally binding.

Are there any pitfalls to a Settlement Agreement for employers and how can they be avoided?

Employers can face several potential pitfalls when offering a Settlement Agreement. One such situation is when an employer misunderstands the nature of a protected discussion and considers themselves to be protected by the ‘without prejudice’ principle when they are not.

Another is when the employer does not realise that the confidentiality obligations in a Settlement Agreement only come into effect when it is signed by both parties, and that confidentiality must also be covered in the initial protected conversation. Other issues can arise when the employer fails to treat payments correctly for tax purposes.

An expert Employment Law solicitor can provide specialist advice to the employer at every step of the process and ensure that these pitfalls are avoided.

Can an employee sue an ex-employer after signing a Settlement Agreement?

In most cases, an employee cannot sue an ex-employer after signing a Settlement Agreement. Once a Settlement Agreement has been properly signed, the employee will usually be prevented from bringing claims against their former employer in an employment tribunal or court.

A key purpose of a Settlement Agreement is to provide certainty and finality. Provided the agreement meets the legal requirements – including being in writing, clearly identifying the claims being waived, and confirming that the employee has received independent legal advice – it will normally stop the employee from pursuing those claims later.

However, there are limited exceptions. An employee may still be able to bring a claim if, for example, the Settlement Agreement is invalid, was entered into under misrepresentation or undue pressure, or if the claim relates to a right that cannot legally be waived, such as whistleblowing or certain unknown future personal injury claims.

For employers, this underlines the importance of ensuring the Settlement Agreement is properly drafted and accurately reflects the circumstances. A well prepared agreement offers you strong protection, but only if it complies fully with the legal requirements.

Am I obliged to provide a reference for the employee?

There is no duty to provide any reference to an employee except in certain sectors of activity, such as the financial services sector. However, the reference provided must ‘in substance be true, accurate and fair’.

You have a duty of care not only to your ex-employee but also to future employers. Your solicitor can guide you on this issue, particularly where performance issues have existed before termination.

Post-termination covenants

The Settlement Agreement should reaffirm post-termination restrictive covenants in your employee’s contract to protect your business. Your solicitor will check your employee’s contract and ensure that enforceable covenants are included in the Settlement Agreement.

When a Settlement Agreement is given because you have seriously breached a contract, your employee’s solicitor may advise that the restrictive covenants have ‘fallen away’. Reintroducing the covenants into the Settlement Agreement will ensure that you have protection, particularly where a small additional amount of consideration (money) is provided for your employee in reaffirming their post-termination covenants.

Are Settlement Agreements confidential?

The confidentiality clause is an extremely important part of the Settlement Agreement. Usually, the employer is most interested in this, but in certain circumstances, the employee will also require a mutual obligation on the employer to maintain confidentiality.

If your employee has been speaking to other people, you may need to reduce the scope so that they can speak to their spouse or immediate family. As an employer, you must be careful not to promise confidentiality where you have little control over third parties or employees and can only use your best endeavours.

There may also be clauses preventing your employee from making derogatory comments against you. Sometimes their solicitor will require that these be changed to mutual clauses, which may be in the interests of both parties where there has been a particularly difficult termination.

Settlement Agreement – how much will it cost?

Solicitors’ fees vary. Martin Searle Solicitors’ fees for advice on a well-drafted and mutually beneficial Settlement Agreement are usually between £500 to £1,500 (plus VAT). The amount will usually depend on the complexity of the payments in relation to tax rules and the requirements of the business.

In addition, you will usually be expected to contribute to your employee’s legal fees, which usually range from £500 plus VAT to £750 plus VAT. We also provide ad hoc advice on fair compensatory payments and whether you have the benefit of a “secret” or “protected” conversation, charged at our Employment Law Team’s hourly rate.

Can an employer pull out of a Settlement Agreement?

An employer can pull out from a Settlement Agreement before it has been signed by both parties.

Until the Settlement Agreement is signed by the employer and the employee, and all legal conditions have been met, it is not legally binding. This means either party can decide not to proceed during negotiations, even if terms have been discussed or provisionally agreed.

Once the Settlement Agreement has been signed by both parties, however, it becomes legally binding and enforceable. At that point, an employer cannot simply pull out without potentially breaching the agreement. Doing so could expose the business to legal claims, including breach of contract.

As an employer you should also be cautious about how settlement discussions are handled. If negotiations are withdrawn in a way that is misleading, inconsistent, or conducted in bad faith, this may create additional risk, particularly if the employee can argue that representations were relied upon.

For this reason, employers often wait until all terms are finalised and approved internally before issuing a Settlement Agreement for signature.

How long does an employer have to respond to a Settlement Agreement?

There is no fixed legal time limit for how long an employer or an employee has to respond to a Settlement Agreement. The timing will depend on the circumstances of the case and how the settlement discussions are being conducted.

However, unless otherwise agreed by both parties, the ACAS Code’s guideline of a minimum 10-day period is widely accepted best practice and can be evidence in tribunal proceedings if timing is later challenged.

When will your employee receive their money?

Once all parties have signed a Settlement Agreement, compensation is usually paid within 7 to 28 days. However, certain payments, such as outstanding salary and accrued holiday and bonuses or commission payments, are normally made through the payroll on the usual payroll date.

What service will Martin Searle Solicitors provide?

We are experienced employment solicitors and all our solicitors are specialists in Employment Law and have vast experience in providing Settlement Agreement guidance for employers. The practice will advise you fully on all the implications of providing a Settlement Agreement and will endeavour to ensure that the sum given represents a fair amount and is not unfairly inflated by the employee’s solicitor. This will enable you to deal with your employee dispute efficiently and quickly.

For expert advice on providing a Settlement Agreement to settle a workplace dispute, contact our Employment Law Team on 01273 609911, or email info@ms-solicitors.co.uk.