Settlement agreements

Formerly known as compromise agreements, and similar to an NDA (non-disclosure agreement), a settlement agreement is a legally binding contract made between an employee and employer. This agreement is often put together to terminate employment for the individual and/or to resolve a dispute affably.

For the agreement to go ahead, the employee must receive legal advice on the terms and effects listed in the document prior to signing. Because of this, the employer is usually obliged to contribute towards, or pay for all, the employee’s legal fees.

There are several reasons why an employer may wish to establish a settlement agreement. These include:

  • A complete breakdown in the working relationship between the employer and employee.
  • The employee has intimated an Employment Tribunal claim against their employer or has raised a grievance.
  • Gross misconduct from the employee.
  • The employee has been made redundant by their employer.

A settlement agreement sets out a series of obligations for both parties, detailing how the employee’s compensation pay will be dealt with. The agreement also ensures the employee will not make an Employment Tribunal claim against the employer or make any claims which could harm the business in which they were employed.

The employee can receive compensation in the form of contractual entitlements such as notice, bonus, or holiday pay. They can also receive redundancy pay, if applicable, and compensation for loss of employment or directorship. Dependant on each case, the latter may be negotiable, which is an element your legal representative can assist you with.

The first £30k of any compensation can be paid tax free to the employee. This is subject to whether the payment is in addition to the contractual entitlements.

Why choose us?

At Gilbert Stephens we are very experienced in advising on settlement agreements. We can assist employers in drafting agreements and negotiating the terms detailed within them. We can also advise them on when to offer a settlement agreement, and the appropriate terms to propose.

We also act for employees who may have been asked to sign a settlement agreement; advising them on the right level of compensation, the terms of the agreement, and whether to consider litigation.

Our Employment Law team can act promptly and efficiently to make sure both parties comply with the deadline set for the completion of the agreement.

Get in touch

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