London: 020 7247 7190 Manchester: 0161 850 4095 Preston: 01772 369 450 Birmingham: 0121 728 6518
London: 020 7247 7190 Manchester: 0161 850 4095 Preston: 01772 369 450 Birmingham: 0121 728 6518

Settlement Agreement FAQs

Settlement Agreement FAQs

Why sign a Settlement Agreement?

Settlement Agreements are normally used in redundancy situations or where there has been a dispute. Leaving a job can be stressful and Settlement Agreements offer many benefits, including peace of mind. The main ones are:

  • Compensation is tax-free up to £30,000
  • Your employer pays for the legal advice
  • Avoiding litigation risk, uncertainty and delay
  • All the rights and obligations are in one document
  • Protection of reputation and a references
  • Avoiding stress


What is included in a Settlement Agreement?

Settlement Agreements tend to be quite standard but they can vary from one workplace to another and the circumstances leading to the offer. A standard Settlement Agreement would include:

  • Payment of notice/garden leave/payment in lieu of notice
  • termination payment (e.g. when payment will be made/amount/tax)
  • employee warranties (promises made by the employee)
  • confidentiality/reputation protection
  • any benefits the employee had (e.g. healthcare)
  • handover and practical steps
  • promises to your employer


Do I have to accept the Settlement Agreement?

A Settlement Agreement is entirely voluntary. However, it can be withdrawn at any time by the employer until both parties have signed. It is important that you take the time to read through the agreement carefully. The ACAS Code of Practice suggests ten days to review the Settlement Agreement but your employer may have set a shorter deadline.


What happens during the negotiation process?

Negotiations are usually done face to face, and sometimes during a ‘protected conversation’ where you can have a colleague or union rep with you.

It is important to state you are negotiating ‘without prejudice’ which means nobody can refer to the discussions in a legal case. As part of our service, we can take over the negotiations.


What is a protected conversation?

Employers and employees are encouraged to have open discussions with a view to avoiding employment tribunals. ‘Protected Conversations’ are a special type of meeting in which the parties can speak about possible solutions or settlements without worrying about conversations forming part of a legal case.

This is really a simpler way of having a ‘without prejudice’ discussion but these days there is no need for an actual dispute. It is important to follow some very simple procedures and guidelines and we can help with this.


Are payments for Settlement Agreements tax free?

If offered, or offering, a Settlement Agreement it is clearly important to understand the tax implications of what is on offer especially as this is an area that can, and has, changed recently. Calculating the tax that might be payable on a settlement (compromise) agreement is not always straightforward. Settlement payments of up to £30000 are usually tax-free though this does not apply to all payments and the tax implications of any payment need careful consideration.


What happens if a Settlement Agreement is broken?

A Settlement Agreement is a legally binding contract and, therefore, the usual remedy would be for compensation for breach of contract but a court can order a party to comply with terms such as those protecting reputations.

An employer can recover monies paid if you break the agreement. Your employer could recover some or all of the money paid to you, so we will explain your obligations as part of our advice.  


What happens where an agreement cannot be reached?

We can advise you on your employment rights and how to move forward. It is important to act quickly. In most cases, a form has to be lodged with ACAS within 3 months of any dismissal or the incident complained of.


Contact our Specialist Settlement Agreement Solicitors Canary Wharf, London, Birmingham, Manchester & Preston

Before signing a Settlement Agreement it is a legal requirement that an employee has had independent advice from a solicitor. We offer a "same day service’'. Normally we can do this by phone but we can meet you anywhere in England if you prefer.

All we need is a copy of the Settlement Agreement, your manager’s (or human resources) name and email. You can contact us between 8:45 and 5:45 or fill in our form:

London: 020 7247 7190 | Manchester: 0161 850 4095

Preston: 01772 963 039 | Birmingham: 0121 728 6518