Settlement Agreements - a guide for employees

What is a settlement agreement?

An employment settlement agreement is a legally-binding contract between an employer and an employee (or, to put it another way, an agreement of settlement), under which the employee agrees to accept some form of benefit (normally a sum of money) in return for agreeing not to bring particular legal claims against their (former) employer. This is why the agreement is called a “settlement agreement” – the employee is agreeing to “settle” their right to bring certain claims in the Employment Tribunal or civil courts. We refer to these settlement agreements as “employment settlement agreements” in order to distinguish them from other types of settlement agreements that you might receive in other areas of law (for example, a divorce agreement).

Employees must receive legal advice from a qualified independent legal adviser (such as specialist settlement agreement solicitors ) before they sign the agreement. The purpose of the legal advice is to allow employees to be completely aware of their legal rights, the terms of the agreement of settlement, and their ability to present any form of claim to the Employment Tribunal. Settlement agreements between employers and employees are extremely common in England and Wales but the law stipulates that such agreements cannot be enforceable unless they meet certain “requirements”, one of which is they they receive legal adviser from an independent adviser. We will explore the other requirements later in this guide.

To explain the purpose and effect of an employment settlement agreement, we must first look at the different types of legal rights under UK law that employees may be asked to ‘waive’ under an agreement of settlement. These are explained below.

Further reading: what are the requirements for a valid agreement?

When should you expect to be offered a settlement agreement?

A settlement agreement/compromise agreement can be offered in any circumstances where there is a workplace dispute, and is also offered even where there is no form of dispute (for example, where there is a mutual agreement between an employer and employee that the employee will leave, or where the employee wants to retire from their employment).

The most common types of cases where settlement agreements are offered tends to be as follows (although this list is not exhaustive):

1. When employers are making redundancies
2. When allegations of underperformance are made against an employee
3. When allegations of misconduct are made against an employee or the employer has started a disciplinary process
4. If the employee has been a victim of behaviour in the workplace and wants to leave (for example, if they have been harassed, sexually harassed, or been the subject of discrimination)
5. Where an employee has submitted a grievance because they are unhappy at work

These agreements are useful, generally, to settling cases where a disciplinary or performance procedure is involved.

In most cases the employee’s employment will terminate when a settlement agreement has been agreed, but not always – the agreement of a settlement does not always mean termination of employment.

What kind of claims would be I be settling under an employment settlement agreement?

You have three broad ‘types’ of employment rights under UK law:

1. Contractual rights
2. Common law rights
3. Statutory rights

Contractual rights

Contractual rights are the rights that you have under the terms of your  contract of employment . These terms are either express (in writing in the contract or associated documentation) or implied (implied into the contract by, for example, custom and practice). Contractual rights include your right to a particular period of notice;  holiday entitlement ; your right to receive a salary, any bonus, and/or commission; your position, place of work, and the like.

Common law rights

Common law rights are legal rights that derive from the common law, such as a right to pursue a claim for, for example, negligence and defamation. Common law rights are rights that can normally only be pursued in the civil courts (the County Court or the High Court).

Statutory rights

Statutory rights are legal rights that you have under UK legislation. Statutory rights that apply in employment situations are rights that can normally only be pursued in the Employment Tribunal. Statutory rights include (among others):

• Your right not to be  unfairly dismissed  or  constructively unfairly dismissed from your job (employees normally have to have had continuous employment of at least one year if they started employment prior to 6 April 2012, and two years’ continuous employment if their employment commenced on or after 6 April 2012)
• The right to not be  discriminated against ,  harassed  or  victimized  because of your protected characteristic (for example, your  sex , age,  disability , and/or  race , among others) (no qualifying period necessary)
• The right to have a flexible working request dealt with properly
• The right to receive a  statutory redundancy payment  (employees have to have had continuous employment of two years or more)
• The right to receive  written particulars of employment  after eight weeks
• The right to not have sums deducted without authorisation from their wages
• Various family rights, such as maternity and paternity rights

Please note that this is not an exhaustive list but contains most of the ‘normal’ types of claims that an employee might have against their employer.

Waiving your employment rights

Employees have legal rights in the workplace (some of which are listed above), rights that can be enforced in an employment tribunal or court if their employer (or one of the workforce of the employer) does (or fails to do) something which infringes on those legal rights – normally if there is some form of dispute between an employer and an employee. However, instead of bringing a claim in the employment tribunal or civil courts, you can choose to waive your right to do so and settle your claim through what is called a “settlement agreement”.

If you wish to negotiate an employment settlement agreement with your employer then you must be careful not to prejudice your position by signing any legal documents without first taking legal advice from a qualified legal adviser (such as a solicitor or barrister, among others). If you have been offered – or wish to try and obtain – an agreement then you should seek legal advice from a specialist adviser before signing any papers – some (although not all) employers are unscrupulous and may try and pressure you into settling your claims for less  than they are potentially worth.

Under the Employment Rights Act 1996, employees receive a degree of protection from such unscrupulous employers by the legal requirement that the employee must receive legal advice from an independent adviser (such as a specialist settlement agreement solicitor) for their agreement to be binding. This means that there is a legal requirement that you must seek legal advice from a legal adviser (through a solicitor, barrister, or a trade union, for example) before your settlement agreement can become enforceable. If you fail to take such legal advice then your agreement will not be enforceable and you may not be able to compel your (former) employer to pay you the sums due under the agreement. In order to properly waive your employment rights and create an enforceable settlement agreement, there must be three signatures on your agreement: your signature, a signature on behalf of your employer (by someone who is properly authorised to do so), and your legal adviser’s signature (to confirm that you have been advised as necessary on the agreement).

If you have already started Employment Tribunal proceedings against your employer then you may – instead of using a settlement agreement – use an agreement called a “COT3 agreement” to settle outstanding proceedings. You may, however, wish to take specialist legal advice from an employment solicitor (such as a specialist settlement agreement solicitor) on the terms and effect of your COT3 agreement before signing it.

Further reading: our guide on settlement agreement negotiations

What are they called? Settlement agreements or compromise agreements?

Settlement agreements were previously known as ‘compromise agreements’ – their name was changed by the Government in 2013 after a consultation, with the reason being that the Government believed that the term ‘settlement’ was a better description of the settlement process (people didn’t like the idea of ‘compromising’ but they were open to the idea of ‘settling’).

In practice the two names (‘compromise agreement’ and ‘settlement agreement’) are used interchangeably and essentially mean the same thing.

Why do solicitors need to get involved?

It is a legal requirement that you receive independent legal advice from a lawyer (such as specialist settlement agreement solicitors) before entering into an employment settlement agreement – the purpose of this is, essentially, to ensure that the employee is not pressured into signing their rights away by their employer, as they will receive advice from a qualified independent lawyer before deciding whether to enter into it. If you instruct us then one of our specialist settlement agreement lawyers will run through your agreement with you and provide you with settlement agreement guidance, to make sure that the terms are fair and that you understand them.

What are settlement agreements used for?

As we explain above, the core purpose of a settlement agreement is to allow the employer and employee to settle workplace disputes rather than pursuing litigation.

What makes a valid employment settlement agreement?

In order for an employment settlement agreement to be valid and enforceable it must must satisfy certain conditions as set out in s.203(3) of the Employment Rights Act 1996. These requirements are as follows:

1. The agreement must be in writing
2. The agreement must relate to a “particular complaint” or “particular proceedings”
3. You must have received legal advice from a relevant independent adviser (such as a specialist settlement solicitor) on the terms and effect of the proposed agreement and its effect on your ability to pursue any rights before an Employment Tribunal
4. The legal adviser that you instruct must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim by you against your legal adviser in respect of legal advice given
5. The agreement must identify the adviser; and
6. The agreement must stated that the conditions regulating compromise agreement/settlement agreements have been satisfied

If your agreement does not meet the above statutory requirements for a settlement agreement then it will not settle your statutory claims – this would mean that you would technically be able to pursue your (former) employer for your statutory rights. However, the practical effect of doing so will probably be that you will have to pay back some or all of the severance payments made to you under the agreement).

What is the effect of a valid settlement agreement?

The effect of a valid settlement agreement is that an Employment Tribunal will no longer had the jurisdiction to hear claims based on the statutory rights that you have and which are waived under your agreement. Depending upon the wording of the agreement, you may also be prevented from bringing other forms of claims, such as claims for breach of contract or common law claims (such as a claim for negligence).

Our employment law solicitors will discuss your particular circumstances with you when advising you on your agreement, and our employment lawyers will advise you separately about the rights that your employer intends to settle in your case.

What questions should you ask your legal adviser about your settlement agreement?

When you discuss your settlement agreement with your adviser (whether this is a solicitor, barrister, or otherwise suitably-qualified person) you should ask them the following questions:

1. What are the “proceedings” that are being settled under the settlement agreement? Sometimes this will be obvious, but your legal adviser should advise you on the potential claims that you have in the circumstances and, therefore, what you are settling
2. Is your legal adviser independent on the other party or parties to the settlement agreement? This should normally be the case, as your legal adviser should carry out a conflict check prior to agreeing to advise you on your matter, but it’s worth asking anyway
3. If your legal adviser is a solicitor, what qualifications does he hold, is he an expert in the field of employment law, and what experience does he have with settlement agreements?
4. What is the effect of the settlement agreement on your ability to bring a claim in the Employment Tribunal or any other courts?
5. Is your legal adviser covered by a contract of insurance or, specifically, professional indemnity insurance? All solicitors should be covered by a contract of  professional indemnity insurance but it is always worth checking.
6. Does the settlement agreement state that the conditions regulating settlement agreements under the relevant statutory provisions are satisfied?
7. What fees will your solicitor charge for advising on the settlement agreement? Your employer will normally cover a particular financial contribution in respect of the fees for the advice on your settlement agreement (this fee contribution is normally in the range of £250 plus VAT to £750 plus VAT, but can be more depending on the circumstances). Speak to the solicitor you’re thinking of instructing and see whether they think the fee contribution offered by your employer will cover the fees for the advice in your matter – it is often the case that the solicitor will be able to limit their fees to the contribution your employer is willing to offer, which should give you peace of mind.
8. How quickly will the solicitors be able to advise you on your settlement agreement? The employer will sometimes set strict deadlines for the completion of the settlement agreement, so make sure that the solicitors you’re thinking of instructing can do the work in the time period specified.

We always recommend that you speak to your friends who have either gone through a settlement agreement process in the past or have instructed a specialist employment solicitor for another reason – if they have any experience with employment lawyers then they’ll probably be able to recommend a lawyer to assist you, and you’ll have the benefit of knowing that a friend of yours trusts (or doesn’t trust) a particular solicitor. This experience can be invaluable in selecting a solicitor.

Also, if you’re thinking of instructing a solicitor then take the solicitor for a “test ride”:

1. See if you can speak to the solicitor you’re thinking about instructing on the telephone; most solicitors will be happy to have a free 10 to 20 minute chat on the telephone with you to explore your matter, ask questions about your particular situation, and answer any questions that you have. You should be able to get a good feel during this telephone call as to whether you’d be happy to instruct the solicitor to work on your matter; and
2. Look at online reviews – online reviews will give you an idea as to whether other people who have instructed the firm were happy (or not) with the services they received, and can be useful in conjunction with obtaining personal recommendations from friends (see above).

Our reviews are excellent.

What claims can’t be settled under an agreement of settlement?

It is usual for the following types of claim to be excluded under your settlement agreement (i.e. you should still be allowed to pursue these types of legal claims):

1. A claim for your accrued pension
2. A claim for any personal injury (or, usually, for any claim for personal injury of which you are not aware or was not reasonably foreseeable as at the date of the agreement); and
3. Any claim to enforce the agreement itself

How will my employer make a settlement offer to me?

If your employer offers you an exit package or a settlement agreement then they may use one of the following phrases in putting the offer to you:

• That they want to have a “ protected conversation ” with you
• That they are making a “ without prejudice offer ” to you (they may also describe it as “ subject to contract “)

Employers also often suggest the use of an “off the record” discussion, which can be code for the offer of a settlement agreement.

Please note that employers don’t always use these phrases, but they are very common.

Why do I need to obtain guidance from a solicitor on my agreement?

It is, as above, a requirement of s.203(3) of the Employment Rights Act 1996 that you consult an independent legal adviser on the terms of your agreement of settlement in order for your agreement to be valid.

The role of a lawyer (such as a specialist settlement agreement solicitor) in advising you on an agreement of settlement encompasses the following duties:

• To explain to you the terms and effect of the agreement, in particular its effect on your ability to pursue an Employment Tribunal claim
• To sign a certificate confirming that you have been advised on the agreement
• To confirm that there is a policy of insurance in place that covers the risk of negligent advice being provided to you (we can confirm that Redmans Solicitors have an appropriate policy of insurance)

An experienced employment lawyer can also advise you on the nature of your dispute with your employer, what potential claims apply, the potential value of those claims, and what action to take against your employer.

Will an experienced lawyer undertake the settlement agreement work?

If you instruct Redmans then a specialist employment lawyer, experienced in settlement agreement work, will undertake the advice on your agreement. They will, among other things, review the terms and conditions of your settlement agreement and advise you on what action they believe that you should take.

Is your settlement agreement a good deal for you?

Technically, your legal adviser only has to advise you on the terms and effect of the settlement agreement that you are signing, with regards in particular to the effect of the agreement on your ability to pursue an Employment Tribunal claim, and does not have to advise you on the merits of your potential legal claims against your employer i.e. whether the agreement of settlement represents a “good deal” or a “bad deal” for you.

Our settlement agreement review solicitors can of course provide you with advice on the merits of your particular legal claims if you request us to do so, as well as advise you on what compensation for loss you can seek. We can also advise you on negotiating the wording of the agreement, should you wish us to do so. The cost of providing this further advice may be covered within the reasonable legal costs that your employer is prepared to pay but if you require substantive advice on these issues then it may fall outside of these reasonable legal costs. It’s a good idea to speak to your solicitor at an early stage to determine the cost of such advice and to prevent any potential misunderstandings.

Generally speaking, if the sums that your employer is willing to pay to you under the settlement agreement are higher than the sums that you would receive under your minimum contractual and/or statutory entitlement and, further, represents a reasonable assessment of the likely value of your Employment Tribunal claim, then there may be merit in signing the agreement. However, what you must bear in mind is that it is not always straightforward to estimate the value of a potential Employment Tribunal claim, particularly if you have not yet left your employment.

It can also be problematic to estimate the value of an Employment Tribunal claim in any event – compensation in Tribunal claims is mainly based upon your loss of earnings from the date that your employment terminated until a future date (normally the date on which you got another job which pays at least as much as your old job or until the date of the Employment Tribunal); it’s difficult to estimate when you might receive employment in the future and, further, it can also be difficult to predict what arguments your employer might use to reduce your compensation. Finally, the process of an Employment Tribunal claim is not always straightforward and this may mean that it could be difficult to estimate your legal costs for pursuing the claim.

However, although there are – as above – certain obstacles to valuing your settlement agreement, we will always try and provide you with the best possible advice and provide you with as much information as possible to allow you to make a reasoned decision about whether or not you wish to sign your settlement agreement.

Further reading: Settlement advice for employees – common questions asked

Should you bring an Employment Tribunal claim or make an agreement of settlement?

If you’ve been offered a settlement agreement then you’ll want to know whether you’re being offered fair terms for settling your potential Employment Tribunal claims, and should therefore sign the agreement, or whether you’d be better served in bringing a claim in the Employment Tribunal to try to obtain compensation.

In order to determine whether agreement of settlement you’re being offered is fair or not, you should have reference to the following key factors:

1. The nature of the potential employment tribunal claims you have
2. The strength of the potential employment tribunal claims
3. The reasonable value of those claims in the employment tribunal
4. The amount you’re being offered in the agreement of settlement to settle your potential claims
5. Other relevant terms in the agreement

The nature of the potential employment tribunal claims you have

Settlement agreements are normally used to settle the following types of potential employment tribunal proceedings: unfair dismissal (including redundancy), constructive dismissal, detriment and/or dismissal due to protected disclosures being made (also known as “whistleblowing”), workplace discrimination (in any form), harassment and/or victimization. Obviously, the types of claim that you can bring will very much depend on the particular facts of your matter. When you talk to the solicitor advising you on your agreement of settlement you should put all of the facts of your case to him or her so they can advise you on which potential types of claim you may have.

The strength of the potential employment tribunal claims

You will have to rely on your solicitor to advise you of the potential strength of your employment tribunal claims. Your solicitor won’t be able to provide you with exact chances of success in your case but they should be able to let you know whether they think your case will be successful or not, and why. You should try and provide any and all documentary evidence to your legal adviser so that they can properly assess your claim, as well as letting them know who you think could provide relevant, supportive witness evidence (should this be applicable), and provide you with full advice on your agreement of settlement.

The reasonable value of those claims in the employment tribunal

Again, this is not an exact science at a pre-action stage (i.e. before you issue any claim in the employment tribunal) but your legal adviser should be able to inform you (on a broad basis) as to how much they think your potential employment tribunal claims are worth so this can be factored into an analysis of whether you’ve been offered a reasonably sufficient amount to settle these claims under the agreement.

The amount you’re being offered in the agreement of settlement to settle your potential claims

Your employer will normally inform you of how much they’re willing to offer to settle your claim – this will generally include the statutory and contractual minimum sums that you are owed (such as notice pay, accrued but untaken holiday, any other contractual entitlement e.g. commission or bonus etc.), as well as an ex-gratia sum to compensate you for the manner in which your employment was terminated. You should, at this point, be able to compare and contrast what you’re being offered by your employer against what you have been informed is the reasonable value of your employment tribunal claims.

Other relevant terms in the settlement agreement

How much you’re being paid to enter into a settlement agreement will normally be the most important aspect to a client but it isn’t the  only factor. Other important terms in a settlement agreement can include whether the client is deemed to be a “good leaver”, provisions relating to gardening leave and whether there are restrictive covenants contained within the agreement (among other things). You should – as above – provide your legal adviser with a copy of your agreement so they may properly advise you on the entirety of the terms that you’re agreeing to.

What are the advantages of a settlement agreement?

The main advantages of a settlement agreement are as follows:

• They can be used to secure financial compensation for poor treatment at work without both sides having to incur the time, stress, uncertainty and cost of Employment Tribunal litigation
• They can be used to leverage your situation and to increase the severance payment beyond the statutory/contractual minimum (notice pay, holiday, statutory redundancy pay (if applicable))
• They can be used to negotiate appropriate non-financial terms as part of your settlement package (this is addressed below)
• They can be used to settle a potential Employment Tribunal claim in the most efficient and time-conscious manner
• To use the tax advantages of the agreement
• To allow unhappy employees an exit from potentially stressful and unpleasant situations without having to resort to litigation

What financial payments are normally paid under a settlement agreement?

You can normally expect to receive the following financial payments under an agreement of settlement:

• Contractual payments payable to the date of termination;
• Payment in lieu of notice (if you are not serving your notice period or being put on garden leave);
• Holiday pay accrued but not taken as of the termination date;
• Statutory redundancy pay (in a redundancy situation);
• Compensation for termination of employment (also known as an ‘ex-gratia payment’ or termination payment);
• Sums due in respect of bonus payments, share schemes, and/or long-term incentive plans (also known as ‘LTIPs’);
• Additional payments for post-termination restrictions and/or new confidentiality clauses (also known as employee NDAs)

What non-financial terms can be included in a settlement agreement?

One of the most important non-financial terms that can be included in a settlement agreement is an agreed reference with your employer (see our guide on obtain references from employers in settlement agreements).

Some of the more common non-financial terms that can be negotiated with your employer include:

• Confidentiality clauses;
• ‘Non-derogatory’ clauses (clauses which compel you not to make any negative comments about your employer) (it is common with these clauses to also ask the same of your employer);
• Allowing you to keep company property (such as, commonly, a mobile telephone, mobile telephone number, or laptop);
• Outplacement support (under which the company will fund a business to help you to find new employment);
• Allowing you to keep receiving certain benefits (such as continuing to allow you to use a company car for a certain period of time, to continue to use private medical insurance, and/or to continue to pay employers’ pension contributions)
• Allowing you to disapply some terms of your contract of employment (for example, if there is a non-compete clause in your employment contract)

Our settlement agreement solicitors will discuss your circumstances and your needs with you, in order to ascertain what terms are important for you in the settlement negotiations.

What’s an average settlement agreement payment?

What you can expect to receive for your particular settlement agreement payout will almost entirely depend on your circumstances. Generally, however, you tend to have a stronger case if you have:

• Been employed by your employer for over two years; and
• You are being threatened with dismissal or have already been dismissed or are being forced to resign; and
• You have evidence to prove unfair dismissal claims or constructive dismissal claims;

If you satisfy the criteria detailed above then, in our experience, the average agreement of settlement payment is normally:

• Between one and four months’ gross salary as compensation for termination of your employment; plus
• Any other contractual sums that you are due (such as notice pay, holiday pay, as addressed above)

If you have evidence to show that you have been discriminated against or are being punished for whistleblowing then you may be able to negotiate more than the average payments detailed above (and, equally, it is less important that you have two years’ continuous employment in such cases).

If none of the above applies then you are probably in a weaker negotiating position. However, you still might be able to achieve a settlement (in our experience it is almost always worth pushing for a settlement payout, as if you don’t ask then you don’t get).

Our specialist settlement agreement solicitors will discuss your circumstances with you and advise you on your potential claims, as well as their value and you can use our settlement agreement calculator to determine what may be an appropriate settlement figure for you.

What can you expect as a minimum settlement agreement payout?

There are no legal minimum settlement agreement payouts (in terms of an ex-gratia payment). However, if you are offered a settlement agreement (also known as an employment compromise agreement) then the minimum sums that you are normally legally entitled to receive include the notice payment, holiday pay, and any statutory redundancy payment.

Is there a maximum compensation payout that you can expect?

There is no such thing as a maximum compensation payout but there are certain maximum awards that you can receive for some types of claim (for example, an unfair dismissal claim has a maximum compensatory award).

Employers are not obligated to use the maximum payments that you could receive for a payment as a ‘ceiling’, although they generally do (in our experience) use these maximum payment amounts as guidelines for determining what sums they should pay when negotiating settlement agreements with their employees.

There are no maximum compensation limits in certain types of claim, such as claims for discrimination or whistleblowing.

Our settlement agreement solicitors can discuss with you the appropriate level of compensation for your case and take you through the settlement agreement process.

Further reading: your settlement: how much should you get for it?

Do you have to pay tax on a settlement agreement?

You have to pay tax on certain payments under a settlement agreement, such as:

• Your notice pay;
• Holiday pay;
• Bonus payments;
• Any other contractual payments

You do not have to pay tax (or National Insurance) on an ex-gratia payment up to a maximum amount of £30,000, although any ex-gratia payment will be subject to tax (but not National Insurance) over £30,000.

Payments made as compensation for injury to feelings are generally also not taxable (if the injury to your feelings relates to a detriment that you suffered prior to your dismissal).

You can find further information on this in our article on ex gratia payments .

Should you accept a settlement agreement or make a claim in the Employment Tribunal?

There are various factors that you should confider in deciding whether to settle your claim or bring a claim in the Employment Tribunal – these include, among others:

• The uncertainty involved in bringing a claim (i.e. the risk that you might lose the claim);
• The time that it will take to issue and finish a claim in the Employment Tribunal;
• The cost of dealing with the case (particularly if you instruct a lawyer to assist you with your claim);
• The stress involved in litigation

However, if you bring and win a claim in the Employment Tribunal then you will generally receive a greater sum of money as compensation than you will receive under a settlement agreement.

Redundancies – how much should you get?

If you are dismissed for the reason of redundancy in a genuine redundancy situation and the redundancy process used has been fair then your employer is only obligated to pay you statutory redundancy pay (should you qualify – see our redundancy article) plus your notice pay and any other accrued payments (e.g. holiday pay, bonus , commission etc.). You are not legally entitled to receive an ex-gratia payment in these circumstances, although it is generally worth trying to negotiate a redundancy settlement payment .

If you are dismissed for the reason of redundancy then you may have a case for unfair dismissal if there is not a genuine redundancy situation and/or the redundancy process used has been unfair.

If your redundancy has been unfair then you may be able to negotiate a financial settlement payment similar to the amounts detailed above. Our specialist settlement agreement solicitors can discuss this with you.

Further reading: how to negotiate a higher redundancy settlement  payment – 10 top tips

How do I negotiate a settlement agreement?

You should follow the following guidelines in negotiation a settlement agreement with your employer:

1. Research the law in order to determine how much your settlement agreement is reasonably worth
2. Use any personal connections that you have with management to negotiation your deal
3. Think about instructing specialist settlement agreement solicitors to provide you with the appropriate settlement agreements guidance
4. Set out clearly what benefits you wish to receive under the terms of the settlement agreement
5. Deal with the negotiations with your employer calmly and courteously
6. Send a written grievance to your employer detailing your complaints
7. Don’t always accept the first offer that your employer makes – undertake 2 to 3 rounds of settlement discussions
8. Check the terms of any settlement agreement offered carefully
9. Consider carefully the costs and benefits of signing a settlement agreement as compared to litigating
10. Make sure that your settlement agreement is legally compliant

You can find more guidance in our article top 10 tips on negotiating an agreement with your employer .

Who will pay the legal fees for the advice on my settlement agreement?

If you agree a settlement agreement with your employer then your employer will generally pay a contribution towards the cost of you receiving legal advice from one of our settlement agreement solicitors (in most situations this legal fee contribution will be somewhere between £350 plus VAT and £500 plus VAT). If you are a senior employee or your matter is particularly complicated then employers do cover greater sums in respect of legal fees (between £1,000 plus VAT and £3,000 plus VAT is not unheard of), but these will normally need to be negotiated.

Can I get a settlement agreement for a personal injury claim?

If you have suffered a personal injury as a result of misconduct on your employer’s part then you can settle such a claim via a settlement agreement. In employment-related claims the most common type of injuries that employers suffer are psychological injuries (such as anxiety, depression, stress, and similar types of injury).

If you have been the victim of discrimination, harassment or victimisation then you may be able to negotiate a compensation payment for personal injury that you have suffered as a result of the discriminatory conduct of your employer.

What happens if you choose not to sign your settlement agreement

If you choose not to sign your settlement agreement (because, for example, you are not able to negotiate agreeable terms with your employer) then this means that you can still potentially pursue your employer in respect of legal rights that you believe your employer has infringed upon. We will advise you on what potential consequences your rejection of the settlement agreement will have – including the potential termination of your contract of employment – and outline some practical next steps for you. However, you should be aware that if you do reject the settlement agreement then your employer will not make a contribution to your fees and you will be responsible for all of the legal fees that we have incurred in advising you.

If you wish to take your dispute to court and make an Employment Tribunal claim (instead of signing a settlement agreement), then you must first notify ACAS of the details of your claim and engage in “Pre-Claim Conciliation”. If your claim doesn’t settle in the conciliation period (a period of up to one month) then ACAS will issue a certificate which certifies that you have engaged in pre-claim conciliation; this allows you to then bring an Employment Tribunal claim , should you wish to do so. However, the new ACAS pre-claim conciliation service may make the limitation dates for your claim more difficult to calculate and you are advised to seek specialist legal advice on this.

Further reading: I have been offered an agreement – do I have to accept it?

Should I accept a settlement agreement?

Ultimately, it is your decision.

Although our job is to provide you with settlement agreement advice, it’s not for us to tell you whether to sign your settlement agreement or not – you must make this decision. If you instruct us to advise you on the merits of your Employment Tribunal claims and whether the value of the settlement agreement represents a “good deal”, we aim to give you the best possible information to allow you to make an informed choice about your settlement agreement. Our specialist settlement agreement solicitors will then only sign their part of the settlement agreement if you tell us you want to proceed with it.

Will my settlement agreement be legally binding?

In order for a settlement agreement to be legally binding, and the settlement terms binding on the parties to the agreement, it must be a valid settlement agreement (as outlined above) and both parties should sign the settlement agreement. The key criteria for a legally binding settlement agreement are as follows:

1. The settlement agreement must be in writing
2. The agreement must relate to a “particular complaint” or “particular proceedings”
3. You must have received legal advice from a relevant independent adviser (such as a specialist settlement agreement solicitor) on the terms and effect of the proposed agreement and its effect on your ability to pursue any rights before an Employment Tribunal
4. The legal adviser that you instruct must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim by you against your legal adviser in respect of legal advice given
5. The settlement agreement must identify the adviser; and
6. The agreement of settlement must stated that the conditions regulating compromise agreement/settlement agreements have been satisfied.

Can a settlement agreement be withdrawn?

The short answer is ‘yes’, an offer of an agreement of settlement can be withdrawn if it is not accepted by you (with such acceptance normally requiring that you sign the terms of the settlement agreement offered). However, in our experience it is uncommon for an employer to withdraw the offer of an agreement of settlement and generally it is the case that the employer and the employee are able to reach an agreement on its terms.

If you are unable to settle your potential Employment Tribunal claims with your employer then you have the following options: to drop your case or, alternatively, issue a claim in the Employment Tribunal. If you want to bring a claim in the Employment Tribunal then you generally first have to make a request to ACAS for ‘ACAS Early Conciliation’. Once you have started the ACAS Early Conciliation process a conciliator will approach you to try and help you reach a settlement with your employer, with the aim of avoiding you having to issue an Employment Tribunal claim.

Who can write a settlement agreement?

In practice anyone can draft a settlement agreement but, as with most things, you will want someone who has the appropriate expertise and experience to draft your settlement agreement. In most cases an employer will ask their specialist employment lawyers or HR professionals to draft the settlement agreement, and the employee’s legal team will then seek to amend the agreement to protect the employee’s interests

Do you advise employees only, or both employers and employees

The vast majority of the work that our team undertakes on settlement agreement is for employees, although we do offer employers guidance as well – our view is that in order to provide the best advice on a settlement agreement you need to have a good understanding of how both employees and employers think about and deal with settlement agreements, and you can therefore provide the best advice if you are providing both employer guidance and employee guidance.

Can I set aside the terms of the settlement agreement if I think I have been defrauded?

Under the law of contract, there are certain defined circumstances whereby a settlement agreement may be invalid and can be set aside. These include (but are not limited to):

• Where a party to the agreement lack capacity (for example, the party has a mental disability which rendered them incapable of understanding or consenting to the agreement);
• Where a mistake has been made about a fundamental matter or which makes it impossible to perform the settlement agreement; and
• Where there has been a misrepresentation of a material fact in certain circumstances

In this case, the relevant question is whether a settlement agreement can be set aside due to a fraudulent misrepresentation by one party to another, inducing them to enter into the agreement (i.e. that there was a genuine redundancy situation when, it is contended as a matter of fact, this was not the case).

In  Hayward v Zurich Insurance Company plc [2015] EWCA Civ 327 ( our analysis here ) the Court of Appeal held that, while the settlement of an ill-founded claim is nonetheless binding, this is not generally the case if the claim was fraudulent: if, subsequent to the completion of the settlement agreement, it is found that a statement about the claim was in fact fraudulent when the other party had believed it was genuine, this may be sufficient to rescind a settlement agreement. However, fraud does not necessarily ‘unravel all’, even when proved – if the party alleging fraud (“A”) was aware (prior to the settlement agreement being completed) that the representation made by the other party (“B”) may not be true but signs the agreement anyway, this will not be sufficient to unravel the settlement (as A had settled the case “with its eyes wide open”).

Applying the above principles to the current question, the crucial issue in the circumstances is whether the person alleging fraud (“A”) was aware – prior to entering into the settlement agreement – that there may not be a genuine redundancy situation at his employer (“B”). If A had alleged to B that there was not a genuine redundancy situation prior to entering into the settlement agreement, but subsequently entered into the agreement anyway, then it is probable that A would find it difficult to challenge the validity of the settlement agreement on the grounds of fraud: A had entered into the settlement agreement with “his eyes wide open”. However, if A had not alleged dishonesty by B from the outset then he may be able to challenge the settlement agreement on the grounds of fraudulent misrepresentation (depending, of course, on A being able to show on the balance of probabilities that the statement by B to this effect was fraudulent).

The practical outcome of this question is that parties need to take care about alleging fault or dishonesty prior to settling a dispute. Further, they also need to understand the implications of settling: advice from specialist legal advisers on this point will therefore normally be extremely helpful in determining the pro’s and con’s of settling a case.

Why might restrictive covenants be contained in a settlement agreement?

Restrictive covenants are normally relevant for senior employees or executives as they may have access to confidential information or trade secrets of their (former) employer, such as client lists or sensitive financial documents. Employers include such clauses in contracts of employment or settlement agreements to ensure that former employees do not unfairly compete with them after the termination of their employment.

The first thing that an employee should do if their employment with their employer is terminating is to check whether there are any restrictive covenants contained within their contract of employment. If so, then the covenants will apply unless the employer expressly agrees to waive those covenants in the settlement agreement. If not, then the employee has more scope to argue for the “watering-down” or removal of the restrictive covenants in their settlement agreement.

Will a restrictive covenant in a settlement agreement be upheld if an employer seeks to enforce it?

The fact that a restrictive covenant is in a settlement agreement (or compromise agreement) is likely to dispose the court towards enforcement of the restrictive covenant, even though the covenant will be examined by the court to determine whether the scope of the covenant is reasonable. There are a number of reasons why a restrictive covenant which is contained in a settlement agreement will dispose the court towards enforcement, including:

1. Both parties in the settlement agreement will normally be legally represented (as a statutory settlement agreement is not valid if the employee does not receive legal advice from an independent adviser)
2. The parties are able to better judge the reasonableness of a covenant at the termination of employment and are therefore in a potentially better position to negotiate the covenant
3. The court may determine that the parties are no longer in an unequal bargaining position and the situation may be perceived to be more of a “commercial arm’s length transaction” (although in most settlement agreements the positions are still very much unequal!)

ACAS and settlement agreements

ACAS is a neutral Government-funded body and is not on anybody’s ‘side’ – the ACAS conciliator will not be able to advise you on your claims but will act as a ‘go-between’ between you and your employer. If you instruct a settlement agreement solicitor, however, your lawyer will seek to ensure that the terms of the agreement of settlement are in your favour as much as is possible.

If you agree a settlement agreement with the help of the ACAS conciliator then ACAS will generally use their own agreement (known as a ‘ACAS COT3 agreement’) to set out the terms of settlement in writing.

Both an ACAS COT3 agreement and a standard agreement of settlement serve the same purpose – they are setting out the terms of settlement reached between the employer and the employee. It is not strictly necessary to instruct a settlement agreement solicitor to assist with advising on your COT3, but it can help to reach a better outcome.

There is an ACAS Code of Practice on Settlement Agreements which sets out guidance on how employers should deal with settlement agreements. This is not legally binding, but can prove helpful in certain circumstances. ACAS also provides a useful draft settlement agreement template .

Case studies: advice on settlement agreements that our specialist settlement agreements have provided to clients

• Redmans help client negotiate increase of over £40,000 to their agreement
• Redmans help client increase their without prejudice offer by over £3,500
• Redmans help client increase their agreement offer by over £3,000

Legal cases: settlement agreement cases that have gone to the courts

• Mrs G Coles v. Elders’ Voice UKEAT/0251/19/VP  – in this case the Employment Appeal Tribunal found that misrepresentation was a sufficient reason to inspect “without prejudice” documents ( read our analysis of the case ; read the Employment Appeal Tribunal decision )
• Ms C Francis v The Priory Federation of Academies 2602678/2021 – in this case an Employment Tribunal held that a former employee could not pursue a claim against her employer because of an agreement that she had signed ( read our analysis of the case ; read the Employment Tribunal decision )
• Sykes v Wright & ors UKEAT/0270/15/BA – in this case the Employment Appeal Tribunal upheld an Employment Tribunal’s award of wasted costs against a representative that the Tribunal had found had poorly prepared for a hearing ( read our analysis of the case ; read the Employment Tribunal decision )
• Mr P James v Huisman International (UK) Limited 3307490/2018 – in this case the Employment Tribunal held a botched settlement agreement offer had led to the dismissal of a Claimant (and a subsequently successful unfair dismissal claim in which the Claimant was awarded £30,000) ( read our analysis of the case ; read the Employment Tribunal decision )
• Ms L Ojelade v Genesis Housing Association Ltd – 3201771/2017 – in this case the Employment Tribunal struck out the Claimant’s claims as having no reasonable prospects of success (a previous COT3 agreement having been entered into), and ordered to pay the Respondent’s costs of almost £7,000 ( read our analysis of the case ; read the Employment Tribunal decision )
• Clayton De Beauville v Hertsmere Borough Council – ET/3303561/2019 – in this case the Employment Tribunal denied the Claimant’s challenge to the terms of an agreement of settlement that he signed, and also awarded £2,000 in costs against the Claimant ( read our analysis of the case ; read the Employment Tribunal decision )
• Cooney v Somerset Care Ltd – ET/1402613/2018 – in this case an Employment Tribunal awarded the Respondent £4,000 in costs after it found that the Claimant had unreasonably rejected the offer of a settlement agreement ( read our analysis of the case ; read the Employment Tribunal decision )

Speak to one of our specialist settlement solicitors today

We have offices in London, Richmond, Hammersmith, Wimbledon, Chiswick, Kings Cross, Kingston, Ealing and Fulham.

Call us on 020 3397 3603 , email us , or request a call back