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Frequently Asked Questions (FAQs)

Read through our frequently asked questions to get the answers you need about your settlement agreement

Your Settlement Agreement Questions Answered

We understand how stressful life can be when leaving your job and we know that the process of negotiating and signing a settlement agreement can seem daunting and surrounded by legal jargon. But if you choose to let us help you, we promise that we’ll work hard to keep things as simple as possible.

We aim to make sure you know what to expect before retaining us and we’ve answered some of the most frequently asked questions.


FAQ All

01. What is a settlement agreement?

A settlement agreement is a legally binding contract between an employer and employee. Essentially, the agreement states that the parties will end their relationship, with the employee waiving the right to make a claim in the Employment Tribunal in exchange for a ‘settlement’ which can comprise of money and/or benefits.

02. What are the legal requirements of a settlement agreement?

To be legally valid, a settlement agreement must:

  • be in writing.
  • relate to a particular complaint or particular proceedings.
  • only be signed after the employee has received independent legal advice from an identified advisor who holds the required professional indemnity insurance.
  • state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied.

The absence of any one of these stipulations will render the agreement null and void. In the case of Palihakkara v British Telecommunications Plc UKEAT/0185/06, the Employment Appeal Tribunal ruled that a compromise agreement (the former name for a settlement agreement) did not settle claims under the Sex Discrimination Act 1975 or the Race Relations Act 1976 because it did not expressly state that the conditions regulating agreements under those statutes had been satisfied. The Court stated: “the absence of a clause confirming that the conditions in these discrimination statutes are satisfied is fatal … the statutes are plain and require a condition.”

03. What are the circumstances under which I can seek a settlement agreement?

There are several circumstances in which a settlement agreement provides a positive solution. You may have one or more grievances/claims and rather than go to the Employment Tribunal, you and your employer may agree to enter into a settlement agreement.

Situations which can lead to a settlement agreement include:

  • unpaid wages, salary, or bonuses
  • discrimination claims
  • breaches of employment contract or statutory rights
  • disagreements about poor performance

Highly skilled people who are in senior jobsmay find their position untenable following a merger or acquisition or a change in corporate strategy. A settlement agreement can provide an ideal solution, allowing parties to go their separate ways in an amicable manner.

04. What are the advantages of a settlement agreement?

A settlement agreement provides several advantages, including:

  • you will avoid the stressful, expensive, and slow process of bringing a legal claim
  • you can negotiate a positive reference
  • unlike bringing a claim in the Employment Tribunal, the financial settlement is guaranteed
  • you can negotiate for non-financial benefits as well as a financial settlement

Our expert team can advise you as to whether a settlement agreement is the right solution for your situation.

05. How much money will I receive as part of my settlement agreement?

The financial settlement you receive depends on many factors, including your job and the industry you are employed in, and your ability to negotiate for compensation. Our experienced settlement agreement solicitors are expert negotiators and can also persuade your employer to enter into an agreement if they are reluctant to do so.

Our settlement calculator provides general guidance as to what compensation you may be entitled to.

06. What financial payments are included in settlement agreements?

The following sums are usually included in a settlement agreement:

  • contractual payments up until the end of employment
  • payment in lieu of notice
  • a termination payment, including an ex gratia payment
  • bonus payments / share schemes/ long-term incentive plans (LTIPs)
  • further sums as consideration for any confidentiality clauses and/or post-termination restrictions
  • all other statutory/contractual claims that might arise in an employment situation
07. What non-financial terms can be included in a settlement agreement?

The most common non-financial term included in a settlement agreement is a positive reference. However, you can negotiate to receive gardening leave, a confidentiality clause (barring your former employer from saying negative things about you), a career coach, and work-related items such as your company car, mobile phone, and/or laptop.

08. I have been offered a settlement agreement – what should I do?

If your employer wishes to discuss a settlement agreement, it is imperative that you seek legal advice immediately. As a niche organisation, our team focuses solely on settlement agreements; therefore, we have first-in-class experience and knowledge of the law and procedure surrounding them.

You can contact us on 0800 048 5667 in complete confidence.

09. Will I have to pay tax on the money I receive?

Settlement agreement payments are comprised of two parts:

  • Contractual payments
  • Compensation payments

Contractual payments consist of payments you are due in accordance with the terms of your employment contract. Examples include holiday pay and bonuses. These will be subject to income tax and National Insurance (NI) payments.

The compensatory payment, also known as an ex-gratia payment, is the compensation you will receive to cover the loss of your employment. The first £30,000 of this payment is tax- and NI free.

10. Can I tell anyone about the agreement?

It is rare for a settlement agreement to not include a confidentiality clause. It is vital that you get legal advice on the terms and breadth of the confidentiality clause, as breaking it could lead to you having to pay back part or even all of your compensation.

Following the exposure of Harvey Weinstein’s sexual misconduct, the UK government is currently considering enacting legislation that prevents standalone confidentiality clauses and those contained in settlement agreements from stopping the signee from reporting criminal conduct or disclosing elements of the agreement to regulated healthcare professionals and legal professionals. However, until this legislation is passed into law, it is vital that you seek legal advice on any confidentiality clauses. Our team will ensure that any attempt to prevent you from disclosing to the police, your doctor, or legal advisor are fiercely contested.

11. What claims am I agreeing to waive?

It is in your employer’s best interest to ensure that by signing a settlement agreement, you waive your right to bring almost every possible type of employment claim against them.

There are certain statutory and personal injury claims that cannot be covered by a settlement agreement. These include:

  • not consulting or informing representatives in a redundancy process
  • not consulting or informing, failing to provide employee liability information, or failing to pay certain compensation under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
  • a personal injury that only became apparent after you signed the agreement.

In most cases, your employer will demand a guarantee that you have no further Employment Tribunal claims than those listed in the agreement.

12. How does a settlement payment compare with a Tribunal award?

In most cases, a settlement payment will be more than you could receive in the Employment Tribunal, especially if you have strong legal representation who can robustly negotiate for you.

If you win your case in the Employment Tribunal, you will be taxed on any award the judge orders. You will also have to pay for legal advice and representation and the matter will be in the public domain. The latter could work against you when seeking future employment.

13. Does my age affect my settlement payment amount?

It can do. If you are relatively young and inexperienced, your award may be less, as you may face fewer challenges in finding another job. However, if you are nearing retirement age and are highly specialised, the fact you are likely to have trouble finding new employment is a favourable factor in negotiations.

14. If I have already left/got a new job, can I still get a settlement?

You have to remember that your employer’s motivation in entering into a settlement agreement is to ensure you leave the company and do not make a Tribunal claim. Leaving your job before signing an agreement removes much of the need for the employer to be generous, or even reasonable. Compensation is to make up for lost wages whilst you are looking for a new job. If you have already started a new position, the requirement to compensate you disappears.

15. What difference does my annual income make?

Your annual salary and any bonuses will greatly affect your financial compensation, as the more you earn, the higher the payment.

16. Can my bonuses or commission due be included in a settlement payout?

Bonus payments and commissions present a challenge as they are paid at the employer’s discretion, as opposed to being a contractual right. Our team will fight tenaciously to ensure you receive as much of your yearly bonus or commission as possible as part of the financial compensation.

17. Does being disabled affect my payment?

Because it may be more difficult for you to find another position, it is likely any financial compensation under a settlement agreement will be higher.

18. If I am facing a disciplinary action, is that a drawback?

Unfortunately, in this situation, your employer is likely to blame you for the breakdown in the relationship. There is a chance you may receive less compensation. However, if you can prove that discrimination or unfairness led to the proposed disciplinary action, it is possible that a generous settlement can be obtained.

19. I am the victim of discrimination, so do I get a higher payout?

Under the Equality Act 2010, an employer cannot discriminate against you if you possess one of the nine protected characteristics: sex, age, disability, marriage and civil partnership, pregnancy and maternity, sexual orientation, gender reassignment, religion or belief, and race.

Discrimination is difficult to prove. However, if proven, it can cause considerable damage to your employer’s reputation. Our experienced solicitors will make the risks of a Tribunal claim clear to your employer and negotiate for reasonable compensation.

20. If I have submitted a grievance, does that affect my payment?

Rather than spend time investigating a grievance, your employer may be happy to enter into a settlement agreement.

21. What does ‘without prejudice’ mean?

Without prejudice means that whatever is said and done on a without prejudice basis cannot later be used to your disadvantage should you decide to make a claim in an Employment Tribunal.

For ‘without prejudice’ protection to apply, there must be a genuine dispute and the conversation or letters/emails relating to the matter must be declared to be on a ‘without prejudice’ basis.

22. Does my notice period matter?

When negotiating your financial compensation, we would use your notice period as a starting point and ask for a few months’further salary on top. However, if your notice period is exceptionally long, you may not get as much compensation, as the Employment Tribunal would only award you an amount to cover the time it takes to find another position. Six months is usually deemed as plenty of time for most professions.

23. Is the size of my company/organisation significant?

It may make a difference as to the size of your compensation. Small companies do not have the financial resources to provide large settlements and may prefer to take their chances with the Tribunal. Larger companies have more resources to pay larger awards, but they can also hire expensive legal teams to fight your claim.

To get the best result, speak to our employment lawyers who specialise in settlement agreements. We have been involved in advising on and negotiating agreements with all sizes of organisations and will develop a robust strategy for achieving the best results.

24. Will I get more if I have worked for my current employer for a long time?

Your settlement is likely to be larger as you have valuable skills and know more about your employer (perhaps things they do not wish to have disclosed). The longer you have worked for your company, the greater power you are likely to have and this can be used to your advantage in negotiations.

25. If I am on a performance improvement plan (PIP) can I still get a settlement?

Because your employer has to pay you whilst you are on the PIP, they may be happy to enter into a settlement agreement so they can part ways without the threat of a Tribunal claim.

26. What if I am on sick leave?

If a dispute exists, it may be more attractive to your employer to pay you off in a lump sum than continue to pay sick pay. They are then free to replace your position and move forward, and you will have a cash settlement to fund your recovery.

27. If I have already issued an employment tribunal claim, can I still settle?

You are able to enter into a settlement agreement even if you have started a Tribunal claim.

28. Does involvement in whistleblowing affect my chances of a settlement?

A confidentiality clause may be deemed unenforceable if you are a whistleblower. In UK employment law, whistleblowing is making a protected disclosure under the Public Interest Disclosure Act. To avoid any confusion, we will negotiate for the confidentiality clause to not prevent you from making a protected disclosure under the Act.

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