Settlement Agreements for Employees

Understanding your rights
with employer settlement agreements

If you’ve been offered a settlement agreement by your employer, it’s essential to understand your rights, the legal implications, and how to maximise your outcome. At Bennett Oakley Solicitors, our experienced employment law team is here to guide you through the process and ensure the agreement protects your best interests.

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A settlement agreement (previously known as a compromise agreement) is a legally binding contract between an employer and employee. It is typically entered into at the end of an employment relationship or to settle a workplace dispute. In return for a financial settlement or other agreed benefits, the employee waives their right to pursue future legal claims against the employer, such as unfair dismissal or discrimination.

When Might a Settlement Agreement Be Used?

Settlement agreements are commonly used in situations where there has been redundancy, performance concerns, workplace disputes, or mutual decisions to part ways. They provide both parties with certainty and closure, avoiding the stress and cost of tribunal proceedings.

Here’s an example:

Elizabeth had been working as an Account Manager for a large textile firm for the past three years. Nine months ago, the company restructured and her role was dis-established. She accepted a new position in the Customer Services department but soon found the role unsuitable. Her employer offered her a severance package, including an excellent reference and a lump sum payment, formalised through a settlement agreement. Once signed, Elizabeth was no longer able to take legal action against her former employer regarding her employment or its termination.

What Are the Benefits of a Settlement Agreement?

There are several key advantages to entering into a settlement agreement:

It allows for a clean break between you and your employer.
You may leave with a positive reference and a tax-free financial settlement.
The process is voluntary, meaning you cannot be forced to sign.
You have the right to negotiate the terms, including the financial offer and confidentiality clauses.
You can include terms that keep the agreement confidential, protecting your professional reputation.

How We Can Help You

Our experienced employment solicitors provide practical, jargon-free advice tailored to your situation. We can:

Review the proposed agreement in full and explain your rights.
Negotiate improved terms on your behalf, where appropriate.
Ensure you understand the tax and legal implications of the settlement.
Help you reach a fair agreement that allows you to move forward confidently.

It is a legal requirement that you receive independent legal advice before signing a settlement agreement for it to be valid. Contact our team today to arrange a fixed-fee consultation.

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FAQ Topics

What is a settlement agreement and when is it used?

A settlement agreement is a legally binding contract between an employer and an employee, typically used to resolve a workplace dispute or to end employment on agreed terms. It’s often offered when redundancy, performance issues, or a mutual decision to part ways arises. In return for a financial payment or other benefits, the employee agrees not to pursue legal claims against the employer.

Do I have to accept a settlement agreement from my employer?

No, settlement agreements are entirely voluntary. You are under no legal obligation to accept the first offer you receive. You have the right to negotiate better terms or decline the agreement altogether. It’s important to seek independent legal advice to ensure the agreement is fair and in your best interests.

What happens if I sign a settlement agreement?

Once signed, a settlement agreement becomes legally binding. This means you will no longer be able to bring legal claims against your employer related to your employment or its termination. However, in return, you typically receive a financial settlement, a reference, and other agreed benefits. Legal advice is crucial to make sure the agreement reflects your rights and goals.

Do I need a solicitor to sign a settlement agreement?

Yes. For a settlement agreement to be valid, UK law requires that you receive independent legal advice from a qualified solicitor. Your employer will usually contribute to or cover the cost of this advice. At Bennett Oakley, our employment lawyers will review your agreement, explain your rights clearly, and help you secure the best possible outcome.