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A settlement agreement is an agreement between an employer and an employee whereby an employee agrees that their employment will end and promises not to bring any claims against their employer, usually in return for a sum of money. 

In order for a settlement agreement to be legally binding it has to meet certain requirements – including that the employee has taken independent legal advice from a qualified legal adviser, usually a solicitor or a barrister.

The most common claims an employer will seek to protect itself from in a settlement agreement are claims of discrimination, unfair dismissal, wrongful dismissal, holiday disputes and breach of contract.  However, each case depends upon the employee’s individual circumstances.  The fact that an employer offers an employee a settlement agreement does not necessarily mean that there is a claim, an employer may just be trying to ensure certainty and a clean break.

If you are an employer, you need to understand what your risks are and whether or not there are other matters that need to be covered in the agreement such as confidentiality or non-compete provisions.  Our solicitors are experts in advising on settlement agreements.

It is normal practice for employers to contribute towards the employee's legal costs, which are usually in the region of £350 plus VAT for simple agreements and up to £2,000 plus VAT for more senior employees or where the agreement deals with more complex matters.  Where we act for employees we try and ensure that legal costs are covered by the employer.

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