A settlement agreement (previously called a ‘compromise agreement’) is a legal agreement between you and your employer under which you will give up your rights to bring certain claims against your employer.

Often these agreements are introduced as part of negotiations regarding the termination of your employment, but that is not always the case. It is also possible for you, as the employee, to instigate settlement discussions.

Regardless of the circumstances, it can be a daunting time, especially if you are presented with settlement terms unexpectedly or find yourself in unfamiliar circumstances and are not clear on how to proceed. Even those individuals who are more acquainted with the term ‘settlement agreement’ may find themselves wondering if the deal they are being offered is fair and whether they should sign the agreement.

‘Termination agreement’, ‘severance agreement’, ‘compromise agreement’, ‘exit agreement’ – these are all terms our team of employment solicitors have heard used by people referring to a settlement agreement.

There are specific legal requirements that need to be complied with to make a settlement agreement valid, but in addition to these, an agreement would usually include mention of outstanding entitlement to notice or pay in lieu notice, any accrued but untaken holiday and compensation or ‘ex gratia’ payment.

There are normally also confidentiality requirements and a range of warranties and indemnities (including those relating to the tax treatment of the payments) which are important and on which you should obtain advice so that you are clear about what you are signing up to.

No. You may be able to negotiate a better deal with your employer and increase the compensation payment.

However, this will depend on factors such as the strength of any potential tribunal claim, the amount of compensation which could be awarded in the event of a successful claim, and how much your employer wants to dispense with your services– sometimes employees are offered a standard settlement agreement on a ‘take it or leave it’ basis.

This will depend on the facts and circumstances of each individual’s situation and the strength of any potential claims they may have. There is also a commercial consideration for the employer who may be keen to avoid incurring the time and expense involved in dealing with internal disputes, prospective litigation or risk to any reputational damage.

If the matter is urgent we can offer same-day appointments. Generally, we can arrange to review the agreement and then arrange to have a call or meeting with you within one or two working days of your first contacting us.

Virtually all employers will contribute towards your legal fees, provided you sign the agreement. Where we negotiate an improved package on your behalf we are also often able to secure an increased contribution towards legal fees to cover the cost of those negotiations.

As an employee, the main benefit of signing a settlement agreement is the lump sum you will receive in return for signing the agreement. In most cases, this is likely to represent a figure significantly in excess of your contractual entitlements such as notice pay, accrued but untaken holiday, and any other pay and benefits in kind up to and including the termination date.

Your employer may also agree to release you from working a notice period or other contractual obligations post-termination.

Provided all the required formalities have been satisfied, then once the settlement agreement is signed, it is considered a legal binding document and you will not be able to change your mind. It is important therefore that you are both clear and sure of your position before you sign.

If you were to act in breach, the company could look to enforce its terms and/or seek damages against you.

It may be possible to vary the terms after it has been signed, but both parties would have to agree and the variation should be recorded in writing and signed.

We would normally advise that as a term of the Settlement Agreement you agree that the employer provide a reference in response to any request from a prospective employer and that the actual terms of the reference are appended to the settlement agreement so that there is no doubt as to what they will provide.