Settlement Agreements
Settlement agreements offer a clean, confidential, and legally binding way to bring an employment relationship to an end. We draft, review, and negotiate settlement agreements that protect your business interests whilst ensuring a swift and dignified resolution for all parties.
End-to-End Settlement Agreement Support
Whether you are initiating a settlement discussion with an employee or responding to one, we handle the entire process. From the initial protected conversation through to execution of the final agreement, our employment law specialists ensure every clause is watertight and your exposure is minimised.
Agreement Drafting
We draft bespoke settlement agreements tailored to the specific circumstances of each case. Every agreement is prepared to comply with Section 203 of the Employment Rights Act 1996, including the required statutory conditions that make the agreement legally binding and enforceable.
Negotiation Support
We guide you through protected conversations under Section 111A of the Employment Rights Act 1996, advising on the appropriate settlement figure and terms. We handle all negotiations with the employee or their solicitor to secure an agreement that works for your business.
Legal Review
Every agreement undergoes rigorous legal review to ensure it contains comprehensive waiver clauses covering all potential claims, including unfair dismissal, discrimination, breach of contract, and statutory redundancy pay. We ensure no claim is left unaddressed.
Confidentiality Clauses
We include robust confidentiality provisions to protect your business, covering non-disclosure of the agreement terms, non-derogatory statement obligations, and restrictions on communication with colleagues, clients, and the media. These clauses are drafted to be enforceable under current case law.
Financial Structuring
We advise on the most tax-efficient way to structure the settlement payment. The first GBP30,000 of a genuine termination payment is currently exempt from income tax and National Insurance contributions, and we ensure the agreement is structured to maximise this benefit for both parties.
A Clean Break That Protects Your Business
Settlement agreements are one of the most effective tools available to UK employers for resolving workplace disputes without the cost, risk, and disruption of an employment tribunal claim. They provide certainty and finality, allowing you to draw a line under a difficult situation and move forward.
Without a properly drafted agreement, you remain exposed to future claims. An employee who leaves without signing a settlement agreement retains the right to bring tribunal proceedings for up to three months (or six months for equal pay claims). A well-crafted settlement agreement eliminates this risk entirely.
- Eliminate the risk of future tribunal claims with a comprehensive waiver of all potential employment claims
- Resolve disputes quickly and confidentially, avoiding the public nature of tribunal proceedings
- Control the narrative with agreed reference wording and non-derogatory statement clauses
- Reduce costs significantly compared to defending a tribunal claim through to hearing
Common Questions
What exactly is a settlement agreement?
A settlement agreement (formerly known as a compromise agreement) is a legally binding contract between an employer and an employee in which the employee agrees to waive their right to bring specified employment claims in exchange for a financial payment and/or other agreed terms. To be valid, the employee must have received independent legal advice from a qualified adviser, and the agreement must meet specific statutory requirements.
Are settlement agreements legally binding?
Yes, provided the statutory conditions are met. The agreement must be in writing, it must relate to a particular complaint or proceedings, the employee must have received advice from a relevant independent adviser (usually a solicitor), and the adviser must have a current professional indemnity insurance policy. Once validly executed, the agreement is enforceable as a contract, and the employee cannot pursue the waived claims at tribunal.
How long does it take to negotiate a settlement agreement?
In straightforward cases, a settlement agreement can be agreed and signed within a matter of days. The ACAS Code of Practice recommends giving the employee at least ten calendar days to consider the terms, although this is guidance rather than a legal requirement. More complex negotiations involving multiple issues or higher-value claims may take several weeks. We work to progress matters as efficiently as possible.
How much does a settlement agreement cost?
Our fees for drafting and negotiating settlement agreements are fixed and transparent. You will also typically need to contribute towards the employee's legal fees, as the employee must receive independent legal advice for the agreement to be valid. The standard employer contribution towards the employee's legal costs is usually between GBP350 and GBP500 plus VAT. Contact us for a precise quotation based on your circumstances.
What are the tax implications of a settlement payment?
The tax treatment depends on the nature of the payments. Notice pay, outstanding salary, and holiday pay are taxable as earnings in the usual way. However, a genuine termination payment (commonly referred to as an ex-gratia payment) benefits from a GBP30,000 tax-free exemption under Section 401 of the Income Tax (Earnings and Pensions) Act 2003. We structure agreements to maximise the tax-efficient elements wherever possible, ensuring both parties benefit.
Resolve Disputes Efficiently
Get expert help drafting settlement agreements that protect your business. Our employment law specialists handle the entire process, from the initial protected conversation to the final signed agreement.