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What is a reasonable settlement agreement and what should I do if I’m given one?

Have you been presented with a settlement agreement by your employer and told to find a solicitor and obtain legal advice on the contents? Do you want to instigate settlement discussions yourself if you are unhappy at work?

This can be a very unnerving time for employees who are often not familiar with the circumstances in which they find themselves. Our specialist employment solicitors are here to assist you, and in this post, they answer some of the questions you may have about settlement agreements.

What is a Settlement Agreement?

A settlement agreement (previously known as a compromise agreement) is a legal contract your employer may ask you to sign, under which you will waive your rights to bring certain claims against it. Normally, the employer will instigate settlement discussions but sometimes the employee will do so. Our solicitors can advise you on the best way to approach these types of situations and to achieve a fair compromise agreement.

Why have I been given a settlement agreement? 

There may be various reasons why you are given a settlement agreement. For example, sometimes it may be to help the parties resolve a dispute between them, other times it may be to avoid the employer going through a stressful dismissal process with you, e.g. if there are concerns about your performance or conduct. Other employers have a practice of offering employees a settlement agreement when their role is being made redundant, particularly if they are paying you more than your legal entitlement.

You will need to assess what you are being offered and whether signing the agreement is the right decision for you. We can help you in this assessment.

If I’m giving up my rights to sue my employer whats in it for me?

To encourage you to sign the settlement agreement your employer will usually offer you a lump sum to be paid once you have signed. In most cases this is likely to be in addition to your contractual entitlements such as notice pay, accrued untaken holiday, and your usual benefits up to and including the termination date.

Your employer might also agree to release you from working notice or release you from other onerous contractual obligations that apply after the termination of your employment. Alternatively, it may be agreed that you spend your notice period on garden leave.

The minimum notice on dismissal is one week per year of employment up to 12 weeks’ notice for 12 years or more service unless your contract of employment provides for longer notice.  If you do not have a contract and are in a senior position you may argue that reasonable notice would be longer than the statutory minimum. You may also want to be paid any bonus or commission or benefit from any share options. These are all matters for negotiation.

Often money paid to you under a settlement agreement where it is under £30,000 and represents genuine compensation for the loss of your employment, can be paid tax free.

Do I have to accept what is offered in the Settlement Agreement? 

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 whether you have a potential tribunal claim that your employer wishes to settle, particularly if you are likely to receive a large award, how much your employer wants to dispense with your services and its normal practices – sometimes employees are offered a standard settlement agreement on a ‘take it or leave it’ basis.

Can I change my mind after signing a settlement agreement?

Provided all the required formalities have been satisfied, then once the settlement agreement is signed, it is considered a legal binding document. It is important therefore that you are 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.

Will I get a reference?

To assist you in acquiring another job, your employer may agree specific job reference wording with you as a fair compromise. This can be very useful as you will then know what your employer will say about you and your termination of employment to your new employer.  We advise this reference is attached to the settlement agreement.

Do I have to take legal advice and if so, who pays for this?

Because in signing the agreement you are waiving your right to bring tribunal claims you are required to obtain legal advice on the agreement. Therefore, although it is not a legal requirement, an employer will often contribute towards your legal fees, provided you sign the agreement.

How can Morr & Co help me?

We can advise on issues such as:

  • the contents of the settlement agreement and your obligations under it
  • the merits of any claim you may have (and how much you could likely expect)
  • deciding whether to accept what is being offered
  • negotiating a better package

Only after taking proper expert legal advice and fully understanding your position can you properly weigh up the advantages and disadvantages and decide whether it is in your best interests to sign the agreement.

For your convenience, we can arrange to discuss your agreement with you by telephone or if you would prefer, we can attend you at a meeting at our offices to discuss it face to face.

Please contact us to make an appointment with one of our employment team.


Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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