Settlement Agreements – Protect Your Interests

Settlement agreements are a common feature of employment law. They are often used to bring an employment relationship to an agreed end on mutually acceptable terms.

Whether you are an employer offering one, or an employee considering signing one, it is important to understand what a settlement agreement means, what rights are being waived and what questions should be asked before proceeding.

Below are five of the most frequently asked questions about settlement agreements and the key points to consider.

A settlement agreement is a legally binding document used to resolve workplace disputes or end employment without the risk of future claims. In exchange for a financial payment or other agreed benefits, the employee agrees to waive their right to bring most legal claims against the employer, such as unfair dismissal or discrimination.

Common situations where a settlement agreement may be used include:

For a settlement agreement to be valid, the employee must receive independent legal advice from a qualified adviser. In practice, the employer will often make a contribution towards the employee’s legal fees.

Settlement discussions often begin with a ‘protected’ or ‘without prejudice’ conversation. These discussions are intended to allow the parties to speak openly about resolving matters, usually on a confidential basis.

A settlement meeting may take place in person or remotely. In either format, employees should usually be given the opportunity to:

Employees should never feel pressured into making a snap decision. It is also important to note that a settlement offer is not binding until the settlement agreement itself has been signed by the employer and employee, and the adviser has signed the adviser’s certificate.

Settlement agreements can vary significantly depending on the circumstances. However, they commonly include:

It is also important to consider whether there are any restrictive covenants or post-termination restrictions that may affect future employment. 

In most cases, no. The purpose of a settlement agreement is for the employee to waive their right to bring most future legal claims against the employer, even those they may not yet be aware of.

However, there are some exceptions. A settlement agreement cannot usually waive claims relating to:

Employees should always make sure they understand the full scope of the waiver before signing. This is one of the reasons independent legal advice is required.

A settlement agreement is voluntary. If an employee chooses not to sign, the position will revert to how things were left before the settlement was proposed. Depending on the circumstances, this can mean that the employer may proceed with a disciplinary, redundancy, capability or dismissal process.

Declining the agreement does not waive the employee’s rights. The employee may still raise a grievance, negotiate different terms or pursue a claim in the Employment Tribunal where appropriate.

That said, it is sensible to obtain independent legal advice early so that the employee understands the risks and benefits of each option.

If you have received a settlement agreement, it is important not to sign until you have taken legal advice. An advisor should explain what the agreement means, whether the offer appears reasonable and whether any changes should be requested.

Advice may cover:

Taking advice gives employees clarity before making a decision.

For employers, a settlement agreement can provide certainty and reduce the risk of future claims. It can be particularly useful where there is a workplace dispute, performance concern, redundancy situation or mutually agreed exit.

However, employers should be careful when offering a settlement agreement. The process should be handled sensitively and in a way that does not create unnecessary risk.

Employers should consider:

Early legal advice for employers can help ensure the process is handled properly and compliantly.

Settlement agreements can offer a clean break for both parties, but they require careful thought and clear advice.

Whether you are negotiating terms, reviewing a draft agreement or considering offering one, it is important to ask the right questions and protect your position.

At Franklins Solicitors LLP, we provide expert, independent legal advice on settlement agreements for both employees and employers. If you have received one or are considering offering one, our Employment Law team can help you navigate the process confidently and compliantly.