Settlement Agreement – Employment Law for Employees – AS Solicitors, Lee Green, Lewisham South East London

Settlement Agreement

Have you been offered a Settlement Agreement by your Employers?

If so, AS Solicitors can help. We regularly act for Employees on Settlement Agreements. We can talk you through the legal requirements and ensure you receive impartial advice and all of the circumstances are reviewed for you.

What is a Settlement Agreement?

Formally known as a Compromise Agreement, a Settlement Agreement is an arrangement whereby an employer and an employee agree to mutually terminate their working relationship in return for payment and signing away future rights to take issues to an Employment Tribunal.

Employers usually offer employees Settlement Agreements where they require certainty that no employment claim can be made by the employee as a result of ending their employment.

Settlement Agreements can be an effective way of resolving a variety of employment-related disputes and can provide an effective way of avoiding legal proceedings and the consequential time and costs of doing so whilst providing the employee with a severance package.

A Settlement Agreement is the only way of the employer settling a potential employment dispute where no proceedings have been started and notice has not been given to ACAS under the Early Conciliation procedure.

A Settlement Agreement usually includes payment by the employer to the employee of an agreed amount of money in return for the employee agreeing not to take court or tribunal proceedings. The package can also include the provision of an agreed reference and a warranty from the employer to confirm that they will not deviate from the essence of that reference when approached for references in the future and terms requiring the employee and employer to keep the terms of the agreement confidential.

Independent legal advice must be sought by the employee before entering into a Settlement Agreement. If a solicitor does not provide a certificate that he or she has given this independent advice a Settlement Agreement is not binding. The employer normally pays most if not all of the employee’s legal costs incurred on taking advice.

It is important that both employer and employee know the tax implications of the various payments that are to be made. Usually if the payment is a genuine severance payment the first £30,000 can be paid free of tax and National Insurance. Other payments e.g. notice pay and holiday pay are taxable. This is dealt with in more detail on the HMRC website at

As the Agreement is final, it is important that you are advised on all terms and conditions to ensure you understand exactly what you are agreeing to and what rights you are signing away.

If you have been offered a Settlement Agreement and require Independent Legal Advice from a Solicitors contact us on 020 8318 4345 or send us an email