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What is a settlement agreement?

In broad terms a settlement agreement is an agreement between an employer and employee whereby (generally) the employee agrees to leave their employment and to not bring any claims against their employer in return for a payment. 

What should I ask for?

The terms of a settlement agreement are negotiable.  It is sensible when negotiating, to work out what your claims might be worth should you not sign a settlement agreement and to use that as a benchmark to decide if the employer’s offer is fair.

Consider the following:

  • Notice pay
  • a statutory redundancy payment
  • Compensation for loss of employment
  • An agreed form of reference
  • An agreed internal announcement as to reasons for leaving
  • The provision of outplacement support
  • being treated as a ‘good leaver’ for share options etc.
  • the right to retain  a  lap top/mobile phone etc.
  • release from any post termination restrictions.
  • The write off an training costs/loans etc

Can any of the money in the agreement be paid to me tax free?

An employer may be permitted to pay you up to £30,000 tax free as compensation for loss of your employment provided that the payment is neither contractual nor post-employment notice pay.  The rules around this are complicated.

What is the Employer likely to ask me to agree to?

As wells as asking for a waiver of claims an Employer may ask you to:

  • confirm that you have returned all company property such as keys, passes etc.
  • agree that you will not make any disparaging statements about the employer
  • agree that you will keep the settlement agreement and its terms confidential
  • confirm that you have not done anything prior to the termination of your employment which would be a breach of contract
  • confirm that you have not retained and will not use any confidential information.

Do I have to Take Legal Advice I want to accept the agreement?

Most employers will insist that an employee takes independent legal advice.  This is because a settlement agreement will not be effective to prevent an employee from bringing statutory claims such as unfair dismissal, unless they do.

Who can provide that Advice?

Only certain people can provide the advice necessary these include qualified solicitors and barristers who have insurance and certain types of trade union representatives.

Do I have to use the lawyer my employer suggests?

No.  It is important to make sure that whoever advises you explains the terms of the agreement in full, advises you as to your potential claims and what they are worth and the risks and benefits in signing or not signing the agreement. 

Who will pay for the costs of the legal advice?

Normally the employer will contribute to the employee’s legal fees.  A sum for legal fees of between £350 plus VAT and £750 plus VAT for a straightforward settlement agreement is typical. If you want your lawyer to try and negotiate a better deal then you may have to pay some additional fees yourself.


Sarah Rushton is a partner and head of employment at Moon Beever LLP and can assist with all employment related matters you can contact her at This information is intended as a guide only.


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