Settlement Agreements & Termination

A Settlement Agreement, previously known as a Compromise Agreement, is an Agreement whereby two parities (an employee and an employee) agree on the terms of settling a potential employment tribunal claim (or other Court Proceedings) or simply set out the termination of the employment contract.

They are traditionally offered by an employer to an employee on termination of employment thus offering the employer the reassurance that following the employee’s departure, the employee with not take any action against the employer.   The employee will be offered some form of ‘compensation’ for entering into the settlement agreement. 

What Terms does a Settlement Agreement include?

  • a sum to be paid by the employee to the employee
  • the date any money is to be paid by/ schedule for payment by installments
  • a prescribed reference
  • provisions as to which party will pay any tax due on the agreed sum;
  • a confidentiality clause namely that neither party may discuss the terms of settlement with anybody other than, for example, lawyers
  • a clause stipulating that neither party is to make derogatory remarks about the other;
  • a clause preventing the employee from pursuing the present claim or bringing any further claims
  • Employer Pays for legal advice

In order for the settlement agreement to be effective the employee must receive advice on the terms of the agreement from solicitor, in particular, its effect on the employee’s ability to pursue action through an employment tribunal.  

Employers will pay a sum the employer towards the employee’s legal advice fee. The total fee incurred by the employee can vary depending on location, seniority and the business sector in which the employees works and the complexity of the settlement terms.  

 £500 plus VAT is typical in London, and £350 plus VAT outside London. (insert fee WR  link)

In some cases the amount offered by the employer will not be sufficient to cover the cost of the solicitors time spent providing the necessary advice and the employee will need to take this into account when assessing the overall deal offered by the employer.

Here are Walker Rose Solicitors we always strive to provide the necessary advice to our employee clients for the same value paid by the employer!

What to expect when negotiating a Settlement Agreement?

Our Solicitors at Walker Rose Solicitors will discuss the following issues with you -

Payments in lieu of notice: The right to notice under the contract of employment means a right for the employee to remain in employment for the period of notice, not simply to be paid for it. An employer will therefore often include in the contract an express right for the employer to make a payment in lieu of notice ('PILON') as an alternative to giving notice, to ensure the employer has the option of terminating the employee's employment and removing the employee from the workplace at any time.

Contractual benefits: The employee will want to ensure that he or she will receive all contractual benefits accruing up to the date of termination of employment and, if he is not working his notice period, a payment in lieu of those contractual entitlements for that period. It is therefore usual to include provision for this in the settlement agreement

Holiday entitlement and pay in lieu: An employee may have untaken holiday entitlement at the date of termination of employment which should be paid for under the term so of the Settlement Agreement. 

Statutory and contractual redundancy payment: An employee is entitled to a statutory redundancy payment where: they have been continuously employed for not less than two years or the employee has been dismissed by reason of redundancy

Post-termination restrictions (restrictive covenants): Employers are obviously reluctant to pay an employee what may be a significant sum in compensation under a settlement agreement only for the employee to go off and work for a competitor. For this reason, the employer will often provide post-termination restrictions on the employee’s activities. 

Waiver of claims (full and final settlement) The employee is essentially agreeing to accept the terms of the agreement in full and final settlement of any potential claims relating to the employment.

Our Expertise

Walker Rose Solicitors provides astute legal advice and the drafting of legal agreements, polices and documents to address your immediate and on-going business needs.

We can assist, negotiate and draft agreement terms with the co-founders, investors, employees, suppliers and customers.

We can assist whether you are a new start-up or an established business.  We work for you to design ‘best practice’ doctrines ensuring and securing a smooth running and efficient workplace.

Walker Rose Solicitors provide sensible commercial legal advice and draft the agreements you need in place to reduce areas of dispute or at least provide a mechanism for the parties to resolve a dispute. We can help you grow and evolve safe in the knowledge that you, your business and your brand are protected and stand on a strong legal ground to move forward.

Our advice is always precise, resilient and affordable.

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Our mission is to provide businesses, and their owners, with quality legal assistance in the most cost effective way.