What do you need to know before signing a settlement agreement?

Settlement Agreement

If you’ve had a dispute at work or are facing redundancy, then you are likely looking at a settlement agreement. If your employer has already offered you one, then you will need to know what to do before signing a settlement agreement.

Sometimes a legal document, in trying to avoid ambiguity, can leave you feeling confused. It’s a bit like playing a game where you aren’t entirely sure of the rules. You know what moves you need to make but don’t want to trip over a clause that will send you back to the start.

We create settlement agreements as a happy medium to resolve issues for both you and your employer, which is why you must get an expert to check it, so it meets your expectations.

What is a settlement agreement?

A settlement agreement is a legal contract. If you need to resolve an issue with your employer, they may give you a settlement agreement. Usually, this happens around the end of your employment when you are facing redundancy, termination or you no longer enjoy working there.

They can also be used to resolve pay or holiday disputes where there is a disagreement, but you continue your employment. However, you are more likely to need an agreement when you leave a company.

There are some fundamental aspects that a settlement agreement must have:

· They must be in writing;
· They are voluntary;
· It must relate to a specific proceeding or complaint;
· It must specify that you and your employer have met all legal conditions;
· Either you or your employer can propose the agreement. But it is the employer who usually does this.
· You get time (usually ten calendar days or more) to review it and consider the offered conditions;
· They often include a reference and some form of payment to the employee;
· Your employer can propose an agreement at any time during or after your employment;

You can find out more information on the ACAS website here.

You don’t need to involve ACAS in the process, but you do need to have professional legal advice for the agreement to be legally binding. Employers will often pay towards the legal fees for this, but it may not cover all costs of independent legal advice.

At the Employment Solicitor, we believe that everyone should access to legal advice so if money is a concern, please do talk to us as we have options available.


Being unhappy at work is very stressful. It can affect your entire life. Homelife and relationships can suffer, you can lose sleep, and you are certainly not able to go to the office to escape.

Settlement agreements mean that you can leave a workplace you no longer enjoy or job that is no longer there for you due to redundancy. You receive financial compensation in return for this. And you no longer need to bring any claim against your employer.

From an employer’s point of view, you save on costly legal fees and time spent in a tribunal. Both you and your ex-employer can move on to better things.

When would you have one?

Your employer can offer you a settlement agreement for many reasons. Although, usually it is because something has gone wrong at work. You may disagree in the way someone at work treats you. Or you’ve been harassed and discriminated against. Also, you may have been dismissed or managed out of your job.

Sometimes companies refer to a termination agreement, a gag-clause, mutually extended resignation, ex-gratia payment or a golden handshake. These are all settlement agreements but under another name.

Settlement agreement and redundancy

We advise on many settlement agreements when companies are making redundancies. Usually, an employer offers a settlement agreement in place of a redundancy procedure. If you are facing redundancy, you may want to read our guide. 

Exit strategy

If you have not been offered a settlement yet but are unhappy at work, then you may want to consider this as part of your exit strategy. An exit strategy is where you know things aren’t going well for you at work, but you want to ensure you leave the company in the best possible way.

We offer a comprehensive exit strategy service that can calm some of your apprehension about leaving your job.

When you’ve lost your job

If you have already left your job or had your employment terminated, then you can still request a settlement agreement. It may be that the circumstances which led up to your termination were as a result of discrimination, unfair dismissal, or harassment. In this situation, a settlement can be beneficial both to you and your previous employer.

Usually, a settlement agreement will include a clause that means you can no longer seek an employment tribunal claim.
This is why it is essential to have someone check the details of your agreement and advise on whether this is the best outcome for you.

Negotiating your agreement

You don’t have to accept the first agreement from your employer. As your employer needs to offer the terms, you may need to return with different terms or conditions. This is why you should have plenty of time to read through the agreement, seek advice and make your decision. You should have around ten working days to consider the terms of the deal.

With the right advice, you may be able to negotiate better terms in the agreement.

Requesting a settlement agreement

If you want an agreement, especially if it forms part of your exit strategy, then you may want to request one rather than wait for the offer. If you are thinking about asking for a settlement, then make sure you take advice first to make sure it’s the best option for you.

Can it be withdrawn?

An offer can be withdrawn any time up until the point at which you accept it. This does not mean you should rush into making a decision. You should have time to consider your options and take advice. If you are concerned that your employer will withdraw the offer, then come and have a chat to us.

However, if you decide not to sign the agreement then, depending on your situation, you may face disciplinary procedures or redundancy.

What if someone goes back on the agreement?

Both sides have to comply with the agreement. Usually, this means that your employer will pay you some money in compensation. You will most likely leave your job, and in some cases, you will not be allowed to talk about what has happened. This is known as a confidentiality clause if either party breaches any term of the agreement they may have a claim for breach of contract at the civil court.

You must be happy to abide by the terms of the agreement before you sign. And that’s another good reason to have a legal set of eyes on the agreement.

What happens if we don’t reach an agreement?

If you can’t come to a middle ground that both parties can live with, then your next option may be to go through a redundancy process or disciplinary procedure. This ultimately ends with you leaving your job. At this point, you may want to consider pursuing claims through an employment tribunal. There is a process and timescales for employment tribunal claims, and you can read about them here.

If you are offered an agreement

If you’re offered a settlement agreement, you need to take independent legal advice. Many employers will use a template agreement, and it may not all apply to your situation. We do not believe in a one-size-fits-all approach to employment advice. Our clients are as individual as we are, which is why we need to understand your circumstances to offer you the best possible advice.

We will review the agreement to ensure that you are getting the best deal in the circumstances.

If you are going through a tough time at work, get in touch and find out how we can help.

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