Settlement Agreement Solicitor - Employment Lawyers

Settlement Agreements formerly known as compromise agreements are legally binding documents that set out all of the terms on which an employee/employer relationship will end. Upon termination of employment this type of arrangement can be used by an employer to ensure that the employee will not bring any legal claims against them in the future. In return for giving up their right to bring a claim to the Employment Tribunal, the employee receives an agreed amount of compensation over and above the amount required by law. These are important issues for most businesses and in the relevant circumstances employers are well advised to obtain qualified legal advice from a specialist compromise agreement solicitor at the first opportunity.

When it becomes clear that the employment relationship is going to end, a settlement agreement solicitor can create a legally binding document that dictates the terms of the termination and addresses two main issues: how much the employee will receive as severance pay and the employee's promise not to pursue any legal claims they may have against the employer in exchange for enhanced financial terms.

A settlement agreement is usually more generous than an employee might expect if relying only on statutory contractual payment for termination of employment however the agreement is often a far-reaching document in that once it is signed all clauses contained in the document must be adhered to by both parties. This type of agreement often details what the employer will tell co-workers about the termination, what the wording of future job references will include and what the employee may say about his/her treatment whilst working for the employer.

The amount being offered in a settlement compromise agreement must be examined in detail and weighed against the circumstances of dismissal and future prospects. Your solicitor may have to renegotiate the terms of such an agreement. In certain circumstances you may be cautioned to reject the offer and look at applying for a hearing with the Employment Tribunal especially in the case of discrimination, victimisation or unfair dismissal.

Generally the cost of obtaining legal advice on a proposed settlement agreement is covered by the employer. In most cases the employee pays nothing for legal advice and representation by a solicitor.


The content of the document drafted by a settlement agreement solicitor must benefit both the employee and the employer. For the employer, it is a guarantee that they will not be subject to any legal claims in the future wheras for the employee, it is a guarantee of how much compensation they will receive when the employment ends. A claim in the Employment Tribunal does not provide employees with any degree of certainty because there is always a chance they will lose their case.


Most settlement agreement solicitors when drafting the contract will, at a minimum, address these basic issues:

  • the amount of compensation the employee is to receive
  • the settlement of all claims that the employee has against the employer, and vice versa
  • the extent to which the compensation being paid to the employee is tax-free
  • confidentiality requirements
  • the reference the employer will provide on behalf of the employee
  • restrictions on the future employment the employee may obtain
  • assurances given by the employer and employee
  • agreement not to make derogatory statements about one another
  • list of the statutes under which the employee is agreeing not to bring claims


The settlement agreement solicitors representing an employer may draft a one sided document and it is important to note that there is no requirement that an employee sign the document if it is not in their interest to do so. An employee has every right to refuse the agreement and retain their right to bring a claim to the Employment Tribunal if agreement cannot be reached by negotiation between both sides settlement agreement solicitors. Refusing to sign, however, may not be in the employee's best interest, which is why qualified legal advice is so important to the entire process.

Legal Requirements

In order for a settlement agreement to be valid and enforceable, it must meet each of the following requirements:

  • the terms have to be in writing
  • it must address a specific complaint held by the employee
  • before signing the agreement, the employee must obtain legal advice from a statutorily defined qualified adviser
  • the adviser providing the advice to the employee must be covered by professional indemnity insurance
  • the adviser must be identified within the agreement
  • the agreement must specify that all of the legal requirements of a valid settlement agreement have been met

Compulsory Legal Advice

One of the most critical requirements for a valid settlement agreement is that the employee obtain legal advice before signing the document. This right to legal advice cannot be waived and exists to protect employees from agreeing to something which they do not fully understand. Under the Employment Rights (Dispute Resolution) Act 1998, the individuals who can provide the requisite advice are qualified trade union officials, advice centre workers and settlemtnt agreement solicitosr.

Settlement Agreement Solicitors

Beyond the fact that obtaining legal advice is a requirement, consulting with a solicitor offers a number of benefits. For example, if you are unhappy with the terms presented to you, an experienced solicitor can help you to negotiate new terms. A solicitor can advise you of whether the amount of compensation specified in the agreement is suitable, particularly in light of any legal claims you may have.

In the vast majority of cases these arrangements are a fair and simple way to amicably end an employment relationship. Signing away your rights to bring a legal claim, however, should not be taken lightly. It is always wise to speak with an experienced solicitor to be sure you are making the right decision. If you would like free advice without further obligation from an expert lawyer just use the helpline.

Settlement Agreements FAQs

    What is a Settlement Agreement?

    The precise content of the settlement agreement will depend on the circumstances surrounding the employment and the termination. Each arrangement is tailored to particular circumstances and it is essential from an employers perspective to obtain qualified legal advice on settlement agreements from a compromise agreement solicitor. For the most part these arrangements cover the same key matters including:

    • details about the amount of compensation the employee is to receive and related issues of taxation
    • full and final settlement of any claims which the employee has against the employer
    • any matters which are to remain confidential
    • any restrictions being placed on the employee’s future employment
    • the reference that will be provided to future prospective employers
    • assurances provided by the employee and employer

    What Affects Validity?

    Validity from the perspective of an employer is paramount. Once the money has been paid, the employer needs to know that they are safe from potential action in the Employment Tribunal. Qualified legal advice from a settlement agreement solicitor is essential for both the employer and the empoyee. A settlement agreement is valid and enforceable only if it:

    • is in writing
    • relates to a particular complaint held by the employee
    • is entered into only after the employee has received legal advice from an independent, qualified adviser who is covered by indemnity insurance
    • identifies the adviser
    • states that all of the requirements for a valid compromise agreement have been met

    What are the Advantages?

    Entering into a settlement agreement means that neither party will have to wait months for a costly and stressful Employment Tribunal claim to resolve the issues. With this type of arrangement both parties know with certainty the specific amount of compensation to be paid and received at an early stage.

    Must the Employee Sign?

    An employee is never required to sign a settlement agreement. If an employee chooses not to sign it, then no agreement exists with regard to the termination of employment. Without signature the employee remains free to pursue a legal claim against the employer in an Employment Tribunal.

    How Soon Before Payment?

    Normally the payment is made within one to two weeks after all of the parties have signed the agreement. The exact date of payment will be noted within the agreement.

    Is it Taxed?

    There is no charge to income tax for payments up to £30,000. However, any amount of compensation in excess of £30,000 will be taxed in the hands of the employee in the normal way, as though it was earned income.

    Must a Solicitor be Involved?

    The law requires an employee to obtain legal advice before signing a settlement agreement. This is because the employee will be giving up certain legal rights in exchange for money and the deal must be seen to be fair to all parties.

    How Much Does it Cost?

    In most cases the employer covers not only their own legal charges but also the expenses that the employee incurs while obtaining legal advice.