Settlement Agreements

Are you a business owner or manager who has questions about settlement agreements?

Do you need to draft a settlement agreement for an employee but don’t know where to begin? Our Employment Law solicitors can help.

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Employers, senior management, and HR managers all have a useful legal tool in settlement agreements. These agreements can be used as a “clean break” away from a former employee ensuring you are protected from any potential employment tribunals.

Settlement agreements can be used by employers when deciding to dismiss an employee or employees and are legally binding. They can, however, be a little complicated and it is imperative to your business that set procedures are followed to protect you and your company.

If you would like some advice in relation to drafting settlement agreements, the procedures, and any potential legal pitfalls that might crop up, our expert Employment Law solicitors are on hand to help. Our initial phone call is completely free.

Get in touch by calling 0800 046 9976 or by completing an enquiry form on this website. 


What is a settlement agreement?

A settlement agreement is a legally binding contract between employer and employer. The agreement settles any potential claims that the employee may have against their employer after the termination of their employment, thus meaning your company is protected from any tribunal claims down the line.

Once an employee agrees to the terms of the settlement agreement, they waive any right to make a claim to an employment tribunal or court. The agreements must be in writing and often involve some form of payment to the employee, and sometimes a reference for their next employer.

Settlement agreements are completely voluntary – you cannot force your employee to sign one. They can also be offered at any stage of an employment relationship. 


Is a settlement agreement the same as redundancy?

No, settlement agreements and redundancy are slightly different. Making someone redundant involves terminating an employee’s contract on reasonable grounds. This means, therefore, you believe no claim can be brought against you. If you believe you have conducted a fair redundancy process, you can proceed without any form of settlement agreement.

They are not mutually exclusive, however. If you do decide to make an employee redundant, you can also offer them a settlement agreement. This may be offered in order for the former employee to leave “smoothly”, and also to protect the company from any potential future claims that may arise. 


What is included within a settlement agreement?

For a settlement agreement to be legally binding, there are certain requirements. The settlement agreement must:

  • Be in writing
  • State specifically what claims are excluded from being made once it is signed
  • Be signed by the employee
  • Must confirm that the employee has had independent legal advice from the legal advisor identified in the agreement
  • State that all legal requirements have been satisfied

Every settlement agreement differs in nature due to every circumstance being different. Having said this, there are some things which are usually included. These are:

  • Information surrounding termination payments
  • References, if requested
  • Information on the confidentiality clause
  • A termination of employment date
  • A waiver and settlement of employment claims
  • Practical issues like handovers, resignation of directorship, return of property

If you would like any advice on what to include or how to ensure your settlement agreement is water, get in touch with Smooth Commercial Law today. 


When might a settlement agreement be used?

There are a number of situations where an employee might want to use settlement agreements to their advantage. Their main use is to avoid a long and drawn-out process of performance meetings, disciplinary hearings and/or redundancy consultations. It also provides a “clean break” from the employee, giving closure to the employer.

Below, we list a few examples of when an employer might want to use a settlement agreement:

  • A job is now redundant due to a downturn in business, but the employer wants to avoid the long process of redundancy. A settlement agreement can be a quick and clean way of terminating employment


  • You have evidence that an employee has committed gross misconduct. To avoid lengthy employment tribunals, you offer to let the employee leave quietly so they do not have to go through hearings and risk a dismissal on their record.


  • An employee has evidence that you have dismissed them unfairly, which you dispute. This can be settled outside of court at a fraction of the value of the claim via a settlement agreement 


When do settlement agreements become legally binding?

A settlement agreement is legally binding when it is signed by both parties. It must also comply with the conditions regulating settlement agreements set out in section 203 of the Employment Rights Act 1996.

Our experts can tell you if your settlement agreement complies. 


What happens if you breach a settlement agreement?

As an employer, you have a legal requirement to abide by the terms and conditions of the settlement agreement. If you do breach the agreement, with late or no payment of fees or confidentiality breaches, then the employee can seek legal advice to resolve the issue through mediation or the courts, if necessary.

Our settlement agreement solicitors can greatly assist in any mediation or issues you may have with complying with the terms and conditions of the settlement agreement. 


How can Smooth Commercial Law help me with settlement agreements?

Settlement agreements are great tool in an employer’s arsenal to solve potential employment law problems. They can, however, be relatively complicated, and if you don’t carry them out properly you could leave yourself open to more claims.

Our expert team of employment law solicitors can assist businesses with drafting and carrying out the settlement agreement process. If you are a business owner or manager and have questions with settlement agreements, or don’t know where to begin, let us help.

If you have any questions about settlement agreements, their uses, or their potential pitfalls, you can contact our experienced settlement agreement solicitors by calling 0800 046 9976 or by emailing You can also contact us through our enquiry form here.