Chelsea 0207 228 2020

Knightsbridge 0207 095 0930

Settlement Agreements


A settlement agreement,  previously referred to as a Compromise Agreement is a legally binding agreement which follows the termination of your employment. The agreement usually provides for a severance payment by your employer.  Usually in return you would agree not to pursue any claim you may have against your employer in the employment tribunal. Frequently, the settlement agreement also deals with the notice element in your contract of employment and could also provide for a “payment in lieu”.

Many employers are using settlement agreements as a mechanism for preventing possible future complaints to a tribunal, especially in redundancy situations. Settlement agreements are recognised by statute and are the only way a claim can be legally binding without tribunal proceedings having been initiated. You must have the settlement agreement explained to you by an independent advisor/solicitor before the agreement becomes binding. The solicitor giving the advice must also sign the agreement and certify that the appropriate advice has been given – We are able to provide such advice to you for a fixed fee.


The use of settlement agreements in redundancy situations is a relatively recent development and has been initiated mainly by employers who want to prevent employees complaining to a tribunal after they have been made redundant.

If an employer does not comply with the law in making redundancies (for example not using a fair selection criteria, or consultation with employees etc) an employee can complain to a tribunal that the redundancy was unfair. This can be done after the redundancy and could result in an award of compensation or even reinstatement.

The only way an employer can ensure that an employee will not complain to a tribunal after redundancy is to encourage the employee to sign away their right to do so. This can be done in a settlement agreement and has the effect of turning the redundancy package into a “full and final” settlement of any claims the employee has against the employer.  Settlement agreements are also commonly used in employment situations other than redundancies and have the same “full and final” effect.


The  settlement agreement will state the full breakdown of the payments you are receiving and the extent to which the sums will be paid free of tax – up to £30,000 in compensation can be paid tax-free without deduction, but you will have to give tax indemnity to  your employer within the agreement and this is entirely usual.  The settlement agreement will also provide for confidentiality both in terms of your employers trade secrets and business affairs and also of the terms of the agreement.   You will be paid a small additional sum for agreeing to this – which can amount to a few hundred pounds.  You will also be required not to make any derogatory comments against your employer.  Some employees prefer such agreements to be mutual, and the majority of employers are frequently in agreement of this request.   You will need to seek advice as to your ability to work for a competitor and/ or service old clients and customers which could be hampered after you leave. There will be a long list of statutes in the settlement agreement which can include:- Race Discrimination Act, Sex Discrimination Act, Employment Rights Act  and many more, under which you will agree not to bring a claim and you should not be concerned by this.  The compromise is intended to be in full and final settlement.


Settlement agreements can be written in very legalistic language and can refer to sections of Acts and Regulations which you may never have heard of.  For this reason and because it is important that you understand the effect of the agreement, it is a legal requirement that you get professional advice on what the agreement means. It is also a legal requirement that your adviser signs the agreement to confirm that advice has been given.

According to the Employment Rights (Dispute Resolution) Act 1998, that advice can only be given by a qualified lawyer, a qualified trade union official, or a qualified advice centre worker, all of whom must be covered by an appropriate certificate of indemnity insurance. A solicitor will advise you if the terms offer you the correct protection and should also advise you if you are being offered a suitable amount of compensation. The number of years you have worked, your salary, job title, and most important of all, the reason for the termination are all important factors.


It should cost you nothing to advise you in relation to the compromise agreement, including any amendments to the compromise agreement wording. This is because your employer will usually foot the bill and pay us direct.

We guarantee you will not be charged more than the amount of legal fees which your employer will agree to contribute. Such amount is normally set out in the settlement agreement.  The amount being offered can always be rejected and a different settlement can be negotiated that both parties are happy with.

We can advise you wherever you are in the UK. We do not need to see you.


There is no legal or other obligation on you to sign a settlement agreement if you are not happy with it. At its simplest, refusing to sign means that there is no agreement between you and your employer, and you are free to make a claim to the employment tribunal (which must be within 3 months of your termination date). In redundancy cases, however, this could mean that your employer would refuse to pay you the full enhanced package and will instead pay the minimum state entitlement. In non-redundancy cases, what you are putting in jeopardy is the ex-gratia payment being offered. Many settlement agreements are, however, capable of being negotiated upwards. In some cases, a tribunal claim may be necessary.

WHEN WILL COMPENSATION BE PAID ONCE THE SETTLEMENT AGREEMENT HAS BEEN SIGNED BY BOTH PARTIES?  Once a settlement agreement has been signed by all parties, any agreed compensation will usually be paid in a within 7 or 14 days. Sometimes, it goes through in the next company pay run. The payment date will be specified in the agreement.


To discuss tactics and possible solutions, please contact our Employment Law team at Leon Kaye Solicitors.  Wherever you are in the UK it is not necessary to have a face to face meeting as we can usually deal with this matter on the telephone.  We guarantee you will not be charged more than the amount of legal fees which your employer has agreed to contribute (normally this is set out in the agreement). Your compromise agreement can be e- mailed, posted or faxed.

If you would like to contact a member of our Employment Law team then please: Email:  Telephone: Chelsea Office: 020 7228 2020 or Knightsbridge Office: 020 7095 0930.