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Settlement Agreements


What is a Settlement Agreement?

A Settlement Agreement is a legally binding agreement between you and your employer. The agreement usually provides for the employer to make a termination payment in return for your agreement not to pursue any claims in a Tribunal or a Court. The employer will usually require you to keep the terms of the agreement, for example the amount and the surrounding circumstances of your contract’s termination, confidential.

How can Wake Smith help with a Settlement Agreement?

  • We offer same day appointments.
  • Advise on the effect of signing the Settlement Agreement.
  • Go through alternatives available to you.
  • Provide fixed costs which will not exceed those paid by your Employer.

What is the difference between a Settlement Agreement and a Compromise Agreement?

Until 29th July 2013, Settlement Agreements were known as Compromise Agreements. In reality, there is little difference between a Compromise Agreement and a Settlement Agreement, however any discussions about the offer of a Settlement Agreement are now protected and cannot be used in an ordinary unfair dismissal claim unless there has been improper behaviour on the part of the employer.

What things are usually dealt with in a Settlement Agreement?

  • A termination date. The date that the Employee will leave.
  • Reason for termination. Not essential, and often described as “mutual agreement”.
  • The most important part for the Employee and is often described as the termination payment.
  • Will the Employee work their notice or will they be paid instead of working?
  • An Employer doesn’t have to give a reference, but if one is to be given then it can sometimes be set out in the Agreement.
  • It is usual to put a clause in that provides that neither the Employer nor the Employee will talk about the terms of the Agreement.
  • Restrictive Covenants. If the Employee has post-termination restrictions in their Contract of Employment then these can often be referred to in the Agreement.
  • Legal Fees. The Employer usually pays the Employee’s legal fees.


Is it really necessary to take legal advice?

In short – YES. An agreement whereby you waive your rights to bring an employment claim is only legally enforceable if a solicitor or other certified person signs it off.

In addition, depending on your requirements, we can identify any claims of which you may not be aware, advise you on the merits of any potential claims, the amount of compensation you would be likely to receive at an Employment Tribunal and whether a settlement agreement is the right route for you.

Why do employers use Settlement Agreements?

Employers will offer a Settlement Agreement when they want to bring employment to an end on agreed terms. This is usually so that there is a clean break with no opportunity for you bring proceedings against them for more money.

Settlement agreements are common where the employer does not want to follow what could be a lengthy process, such as a performance management or a full redundancy process. Also, where you have raised a grievance or other concerns, the employer may want to enter into a Settlement Agreement to avoid a claim for constructive dismissal and/or discrimination.

How much will it cost?

Your employer should pay a contribution towards your legal fees of between £350 and £500 (plus VAT) depending on the complexity and breadth of the issues. This is likely to cover your legal fees in a straightforward matter.

When will I receive my money?

Once the Settlement Agreement is fully executed, the termination payment is usually paid within 14-28 days. However, certain payments will be made through the payroll on the usual pay date such as outstanding salary and accrued holiday and bonuses or commission payments.


Employment Team

Joan Pettingill
Director & Head of Employment Law & HR Services

Holly Dobson

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