Settlement Agreements – What you need to know

In good news, which feels like rather a rare commodity these days, the Insolvency Service have recently published figures showing that planned job cuts by British employers fell by 11% since July, meaning that the predicted surge in unemployment this autumn following the end of the government furlough scheme at the end of September may be smaller than anticipated.   However, if you do find yourself facing redundancy, and are offered a Settlement Agreement by your employer, what should you do? 

As Melissa Polglase, Solicitor in the Disputes team at Penderlaw Solicitors, says “The most important thing is not to rush into signing it straight away, no matter how good the offer looks, or how upset you are, and in a hurry to draw things to a close.  It is at this point you should seek independent legal advice.  You may well find that your employer will contribute towards this, as a Settlement Agreement is not legally effective without this.

A Settlement Agreement is your one chance to secure a favourable redundancy/exit package.  By signing it, you are likely to be waiving any future rights to an employment claim against your employer.  It may also contain other limitations, such as agreeing not to work in the same area or to contact any previous clients. A solicitor will be looking to spot anything within the agreement which is not in your best interests, which you may not even be aware of.”  

So…what is a Settlement Agreement?
It is a legally binding document between an employee and an employer.  It will usually specify an exit package and will also stipulate certain conditions.  It is also likely that your employer will want you to keep the detail of the Settlement Agreement confidential.  Settlement Agreements are also sometimes described as redundancy agreements, compromise agreements or termination agreements.

Seeking independent legal advice before signing your Settlement Agreement
Your employer may encourage you to seek independent legal advice on your Settlement Agreement. As a matter of fact, as mentioned earlier,  Settlement Agreements are not legally effective unless the employee has received independent legal advice.  This is a sensible thing to do, as there may well be issues within it which would not necessarily be apparent to someone without legal knowledge, and we are therefore required to sign a certificate confirming that you have been appropriately advised.  Without legal advice, you could unknowingly sign something which could be unfavourable to you, but which a solicitor would spot and amend to your advantage. The main one being accepting a severance package that is lower in value than what you could possibly be awarded by the Tribunal, in the context of any claims that you may have.

Did you know?  Employers often agree to pay a sum towards these legal fees.
Yes, this is true.  Employers are often keen to ensure that independent legal advice is obtained to be certain that the agreement is legally effective,  and are therefore prepared to contribute towards the cost of the initial advice. If any negotiations are required on the content of the document, we would discuss the charging mechanism with you and whether it would be covered by your employer’s contribution. If your employer hasn’t offered to contribute towards you seeking independent legal advice, it’s worth asking them!

What sort of advice will a Solicitor be able to give on a Settlement Agreement?
We would look at whether you have grounds for any claim and if so, the approximate amount which you could be awarded, by the employment tribunal.  Other aspects would also be considered which you may not be aware of or even realise apply to you, such as potential discrimination based on age, race, sex, etc under the Equality Act.  

Protecting you
We will help you to understand the terms of your agreement and how they will affect you so that you don’t go into anything blindly. We would also work to ensure your Settlement Agreement is drafted to protect you and where possible, ensure that everything you agree to within it is in your best interests, whilst at the same time, do our very best to get you the most favourable compensation package we can in the context of your current terms of employment.

Get in touch
If you would like to speak to us about obtaining independent legal advice on a Settlement Agreement, please get in touch with our Disputes team.  You can call us on 01872 241408 or email