Settlement Agreements Solicitors Essex, Brentwood & Romford

What is a Settlement Agreement?

A settlement agreement is a contract that is legally binding, made between an employee and an employer. The agreement settles any claim the employee may have against an employer which is usually in exchange for an enhanced payment.

Is a settlement agreement the same as a compromise agreement?

Previously settlement agreements in employment law were called compromise agreements. Use of the term “compromise agreement” is fairly uncommon these days.

Understanding Settlement Agreements

The terms of a settlement agreement can be difficult to understand. They will usually include provision for payments to the employee and for the settlement of all claims against the employer. There may be clauses dealing with confidentiality and restrictions upon who the employee can work for following termination. An employment solicitor will help to make sure you understand the agreement by explaining everything in simple terms.

Settlement Agreement vs. Legal Action

Once signed by all parties a settlement agreement is legally binding, this means you can not take further legal action against your employee/employer. Your solicitor will help you to understand whether you might have a claim and, if so, whether you would be financially better off accepting the settlement payment offered.

Benefits of a Settlement Agreement

A settlement agreement ties up all of the issues between an employer and an employee around their employment and the termination of their employment. For an employer, it gives confidence that there will be no further claims. For an employee, the benefit will usually be some form of compensation for the termination of their employment.

Cases in which Settlement Agreements are necessary

Settlement agreements are usually needed to bring an end to an employment relationship in a mutual way, without the risk of a claim in the future. Most employment law can be settled with a settlement agreement including unfair dismissal, holiday pay, wages deduction, discrimination claims, flexible working and part time work.

What claims cannot be settled by a Settlement Agreement?

A settlement agreement cannot settle claims in relation to your pension rights or relating to a latent personal injury.

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Legal Impact of a Settlement Agreement

A settlement agreement is a binding contract between employee and employer. Once it is completed, i.e. signed by both parties, neither party can change their mind.

Liability under a Settlement Agreement

Payments made by an employer under a Settlement Agreement will be made without admission of liability – this means that the employer is not admitting any wrongdoing.

What are the key clauses in settlement agreements?

For an employee, the key clause in a settlement agreement will usually be the one around compensation for loss of employment. For an employer, the key clauses will be that which prevents any future employment tribunal claims, and perhaps if appropriate, some clauses restricting the employee from going to work for a competitor in future.

Settlement Agreement - Employment Law

What does ‘Without Prejudice’ and ‘Subject to Contract’ mean?

Until a settlement agreement is completed (signed by both parties) it is “Without Prejudice and Subject to Contract”. This means that, until the point of completion, there is no legal obligation upon either party, and it can be withdrawn.

Financial Terms of a Settlement Agreement

The financial terms of a settlement agreement will usually deal with payment on salary up to the termination date, pay in lieu of notice (if the employee is not required to work their notice) payment for untaken annual leave and other contractual sums owed to the employee. There will also usually be a payment to the employee as compensation for loss of employment – this might be referred to as a “settlement payment” or an “ex-gratia”.

Liability under a Settlement Agreement

Non-Disparagement under a Settlement Agreement 

A settlement agreement will often contain a clause by which the parties agree not to make or publish negative or disparaging comments about the other party.

Termination of Employment under Settlement Agreement 

A settlement agreement will usually bring the employment to an end and will set out the date of termination of employment.

Can an employee ask for a Settlement Agreement? 

Yes, an employee can ask for a settlement agreement, although it is usually the employer that uses proposes one.

Settlement Agreements Solicitors Essex, Brentwood & Romford

Mullis and Peake and Expertise in Settlement Agreements

Mullis & Peake have a specialist employment law team ready to provide you legal advice. Meet your new workplace solicitor: Esther Marshall. Over her 23 years as a qualified solicitor, Esther has dealt with a huge range of clients and issues, and calls upon that experience to find the most pragmatic and effective way to resolve matters, always putting the client first.

Why do I need an employment solicitor for a settlement agreement?

In order for a Settlement Agreement to be legally binding the employee must seek legal advice. The employer usually bears the cost of the advice and the employer is free to choose any solicitor they wish.

As I have to see a solicitor, who pays for this?

In most cases, the employer will make a contribution towards the employee’s legal fees. The employee may have to pay for legal advice if there is no contribution, or if the contribution does not match our fee.

Is a settlement agreement payment agreement tax-free?

An employer can pay up to £30,000 compensation for loss of employment tax-free. Other payments included in a settlement agreement such as salary, pay in lieu of notice (PILON) pay for accrued annual leave and bonus payments will be subject to deductions for income tax and National Insurance.

Frequently asked questions

A settlement agreement will only be legally binding if the employee has taken independent legal advice, and the adviser has signed the agreement to confirm that advice has been given.

This depends upon the circumstances. If the agreement has been offered in a redundancy situation and you don’t accept it, you are likely to receive only your statutory redundancy entitlement.

Employers may have differing policies around whether they offer enhanced redundancy payments, how they deal with bonus payments upon termination, and what support they offer to employees who are made redundant.

Most settlement agreements will include a mutual non-disparagement clause, which means that neither party can make negative or disparaging statements about the other.

Settlement agreements used to be referred to as compromise agreements. The two names mean the same thing, but the term “compromise agreement” is rarely used nowadays.

Usually, the employer will suggest a settlement and provide a copy of the agreement. The employee will then take independent legal advice and, if everything is in order, the agreement will be signed. The employment will then come to an end on the agreed terms and the employee will receive their settlement payments.

When you meet with your employment solicitor to discuss your settlement, they will ask questions about your employment, and why it is coming to an end. They will explain the terms of the agreement to make sure you understand them, and answer any specific queries you may have.

The effect of a settlement agreement is to bring the employment to an end upon agreed terms. Those terms will usually include payments to the employee, and the waiver of claims against the employer.

If an employee may have grounds to bring an unfair dismissal claim against their employer, the employer may offer a settlement agreement under which the employee waives their right to bring that claim, in return for a payment.

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