Settlement agreement solicitors

Our employment solicitors can review your settlement agreement for you and provide detailed legal advice on the terms of the settlement.

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What is a settlement agreement?

A settlement agreement is a legally binding contract between an employer and employee. It’s usually used to mutually agree the terms for ending employment but can also be used to agree a change to the employment terms.

A settlement agreement is often used because the employment rights of the employee have been breached in some way. Or it will act as a severance payment if the employer wishes to terminate the employment in a way that breaches the employee's employment contract.

Essentially, the employee will agree not to pursue any claims against the employer in return for a compensation payment and / or reference from their employer. The settlement agreement will also cover confidentiality and any other obligations.

This page is for individual employees seeking settlement agreement advice. For employers or unions involved in a group redundancy exercise, see our group settlement agreements page.

Benefits of a settlement agreement

A settlement agreement can offer benefits for both you and your employer.

A settlement agreement can be:

  • positive for you, giving you a financial incentive and a reference to end the work relationship
  • positive for you, with the financial cost of a settlement agreement usually paid by the employer
  • positive for you and your employer, resolving an issue without the time and cost of an employment tribunal
  • positive for you and your employer by helping you leave the employment quickly and move on when things aren't working out

Settlement agreements are a common, pragmatic and effective way of bringing about a resolution to an employment issue, enabling both parties to move on.

Settlement agreement solicitor fees are usually covered by your employer

Your employer usually pays for you to get independent legal advice about your settlement agreement. This is because it is a legal requirement for independent advice to be provided and a failure to do so is likely to render the agreement unenforceable.

If your employer doesn’t agree to cover your legal costs, our employment solicitors will negotiate with them to seek payment of the legal fees as part of the settlement agreement.

For detailed legal advice on the terms of settlement (without any financial negotiations and without advice on the merits of any employment tribunal claims) our minimum fixed fee is £420.

For this fee, we will:

  1. review the settlement agreement
  2. provide written advice on the terms and effect of signing the settlement agreement, so the employee understands the implications of what they are signing
  3. liaise with the employer to raise any queries or amendments
  4. arrange for the settlement agreement to be signed and returned electronically
  5. provide a signed certificate to confirm that we have provided independent legal advice
  6. make the settlement agreement process as hassle free as possible for both the employee and employer

We can also provide digital options during the process, such as signing advisers certificates electronically via DocuSign, if this is appropriate in your case.

All our prices are inclusive of VAT.

Additional services available

If you need advice on any potential tribunal claims or whether the offer in your settlement agreement is reasonable, this is likely to cost more. We will discuss any additional fees with you in advance and these fees will depend on the service you require.

Once we have provided you with a written quote for the agreed work to be done, that price will not change, unless the original information we are given is shown to be incorrect or circumstances change.

At Co-op Legal Services our settlement agreement solicitors only represent employees.

Our employment solicitors help employees resolve work disputes and reach an amicable settlement with their employer through a settlement agreement that avoids the stress, uncertainty, time, costs, risks and career damage that can be associated with pursuing an employment tribunal claim.

I am delighted to be awarded such a significant settlement. I’d like to say thank you for you very prompt professional and personable support through this process. (Simon)

Customer testimonials

What you need to know about settlement agreements

Settlement agreements, which used to be called compromise agreements, are legally binding documents. They are usually used to formally end the employment contract between an employer and employee and/or to settle a potential employment tribunal case.

Under the terms of the settlement agreement, the employee agrees not to bring a claim in the employment tribunal.

The benefit of a settlement agreement to the employee is that they avoid the risks of pursuing a tribunal claim, in return for a compensation payment. The employee may also be able to agree terms that wouldn’t be possible through a tribunal claim such as a favourable reference, agreed wording for an announcement or outplacement support.

The benefit of a settlement agreement to the employer is that it removes the risk of the employee bringing a claim against them in the employment tribunal.

Both parties benefit from the clean break.

Understanding settlement agreements

The key points of settlement agreements are:

  • settlement agreements are voluntary, you do not have to agree to a settlement agreement and you have the right to negotiate the terms of any agreement
  • a settlement agreement usually means you can't take your employer to the employment tribunal if you sign the agreement (this only covers any claim types named in the agreement)
  • a settlement agreement usually means you receive a financial payment as part of the settlement and normally a reference to use when applying for new jobs
  • any negotiations that take place are confidential and as a general rule cannot be used in an employment tribunal by you or your employer - you should always mark any written communications to your employer 'without prejudice' during settlement negotiations so that they cannot be used in any future legal proceedings
  • a settlement agreement is legally binding - once the agreement has been signed by both parties and a solicitor, it becomes a legally binding document which can be enforced by either side

It is important to get the right legal advice about your case, before agreeing to the terms of a settlement agreement. Our employment solicitors have specialist expertise in settlement agreements. We represent employees only, so you can rest assured that you will be getting expert advice about your settlement agreement from specialist employment solicitors who are on your side.

How to use a settlement agreement

Most people think that settlement agreements are used as a means of ending employment. While this is a common use of settlement agreements, it's not the only situation they're used in.

If the relationship with your employer is not working, a settlement agreement can help you both separate from your work relationship cleanly. They can also be used to settle disputes with your employer, meaning you remain employed in your job.

These disputes can include:

Your employer may approach you with a settlement agreement proposal or you may decide to ask your employer for a settlement agreement. However a settlement agreement is used, you have the right to negotiate the terms.

Questions to ask before signing a settlement agreement

There are 10 key questions you should ask before you sign a settlement agreement:

  1. how much compensation should you expect in your settlement agreement?
  2. are you working your notice period or are you being paid in lieu of notice?
  3. has your employer agreed to provide a positive job reference and, if so, has this been attached to the settlement agreement?
  4. are there any onerous restrictive covenants, such as clauses preventing you from working for a competitor or restrictions on talking about the reasons for your departure?
  5. have any bonus payments been agreed and, if so, does the settlement agreement reflect these?
  6. has your outstanding holiday pay been noted in the settlement agreement?
  7. have you considered any other claims you may have against your employer, which could impact on the amount of compensation you could claim?
  8. has your employer agreed to pay your legal fees?
  9. will you have to pay tax on your settlement agreement?
  10. have you received independent legal advice, which is a legal requirement of a settlement agreement?

How to calculate a settlement agreement amount

The amount of settlement agreement compensation that an employer will offer will depend on any contractual or statutory entitlements and any potential employment tribunal claim that the employee could bring.

Some of the points that both the employer and the employee might want to consider when calculating a settlement agreement amount include:

  • the reason for the settlement being offered
  • how long it might take to resolve the issue if a settlement wasn’t reached
  • the employee’s salary
  • how difficult the employee might be to replace
  • how long they have been employed for
  • how long it might take the employee to find another job

It’s also important to review the terms of the employment contract, to ensure that appropriate payment is offered for things such as unused annual leave and any notice period that has been set out. There may also be terms included in the contract relating to remuneration, which would also need to be taken into account.

Get help with a settlement agreement

As an employee, it’s a legal requirement for you to take independent legal advice before signing a settlement agreement. We can help with this and your employer will usually cover these legal costs for you.

If you have been offered a settlement agreement, contact us and we can help you.

If your employer has not yet offered you a settlement agreement, we may not be able to help you at this time. Please come back to us if your employer does suggest settlement terms in the future and we will help you.

Negotiating a settlement agreement

If you receive a settlement agreement offer from your employer, you have a few options on what to do next. Depending on the circumstances of the offer, you might decide to negotiate on the settlement agreement to try and get a better offer.

You should carefully consider the amount of compensation you are being offered in the settlement agreement. The settlement figure should reflect the seriousness of the issues you are facing at work.

If your employer is adding in restrictive covenants that will hamper your ability to get a new job, there should be additional compensation for this. It should also reflect the amount of money you would potentially be awarded if you took your claim to an employment tribunal and any additional costs this would have for your employer.

You should have a good idea of the amount of compensation you are looking for before you start negotiations. This will help you to negotiate to a level you feel comfortable with.

Negotiating your settlement agreement in person may not be your best approach. You may want to conduct these negotiations in writing (usually by email). Whether you negotiate face to face or by email, you should state that you are discussing this 'without prejudice'. This is simply a legal term to show that your discussions are off the record and therefore cannot be used at any employment Tribunal.

Although not a rule of law, it is generally good practice for your employer to allow 10 working days for you to consider the proposed agreement and to take the appropriate legal advice. This period may be longer or shorter, provided you and your employer both agree to this.

What to consider when negotiating a settlement agreement

A settlement agreement is not always about financial compensation, other things you may want to be included are:

  • a reference from your employer
  • removal or amendment of restrictive covenants within your contract of employment
  • company-wide communications about your departure (to avoid negative inference)
  • if you are entitled to shares and bonuses in the course of your employment, they should be considered in any settlement agreement
  • payment in lieu of benefits, such as private healthcare, company vehicle and private pension contributions

It is important to remember that there is no exhaustive list of what can and can’t be included. A settlement agreement is your opportunity to present any changes or outcomes you want. Our expert team will be able to advise you on the reasonableness and likely outcome of your intentions around your settlement agreement.

You should also consider what the best course of action would be for you. You may be able to negotiate with your employer about working your notice period. Some employers offer the option of garden leave or payment in lieu following immediate termination of employment. It may be worth approaching your employer to see if these options are available.

Making a settlement agreement legal

There are certain details that must be included in a settlement agreement. This is to ensure that you have relinquished any rights you have to take your employer to an employment tribunal.

These requirements are:

  • the settlement agreement must be in writing – any oral agreement will not be binding
  • the settlement agreement must be explicit about the complaint or the claims it covers - if it does not fully explain each type of claim it covers, your employer will not be protected against those claims
  • you must have had independent advice covering the terms of the agreement and the effect of it - a full explanation should be given to you about relinquishing any chance of a claim against your employer
  • your independent advisor must have professional indemnity insurance
  • your independent advisor should be named in the settlement agreement
  • the settlement agreement must state that all these provisions have been met and that as a result, the agreement is valid

Breach of a settlement agreement

If your employer breaches the settlement agreement, for instance by not paying the sum due or infringing other terms of the agreement, you can bring a claim in court for breach of contract.

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Is a settlement agreement tax free?

Settlement agreement compensation payments can be tax free in England and Wales depending on how the agreement is written and whether the payment is compensation for loss of employment. Settlement payments can be tax free up to a certain limit, but any payments made in lieu of holiday or notice will be taxable as normal earnings.

Getting expert legal advice from a Co-op Legal Services settlement agreement solicitor may help you to minimise your exposure to tax.

Tax allowances on settlement agreements

Any amount that is non contractual and is agreed in a settlement agreement will be tax free on the first £30,000.

This includes payments for:

  • loss of employment
  • payment for injury to feelings
  • payment for a disability or injury
  • redundancy – both statutory and contractual amounts

Any amount payable over £30,000 will be taxed at a rate of between 20% and 45% depending on the amount.

The cost of legal advice on your settlement agreement should be paid directly by your employer and therefore should not be included in the £30,000 tax free amount. You should ensure that the settlement agreement is written to show a specific clause that your employer will pay this amount directly to the employment solicitor of your choice, and that it is only in respect of the termination of your employment.

Also, if you have agreed a clause in your settlement agreement that allows you to attend external training sessions or business coaching, you should ensure that your employer pays these directly to the provider so this amount is not included in your tax free amount.

There are a number of other categories of pay or benefit which are considered taxable earnings. There is a list on GOV.uk.

The £30,000 tax free limit can apply to more than one settlement agreement depending on the circumstances.

The structure of your settlement agreement is important so that you can minimise the tax liabilities you face and an employment law solicitor who has experience in negotiating and reviewing settlement agreements, can help you to clarify some of the points in the agreement and offer advice on how the agreement could be structured to reduce your tax liabilities.

Public sector settlement agreements

Settlement Agreements in the public sector work in exactly the same way as they do in the private sector, although not all public sector organisations permit confidentiality clauses. These clauses are used to prevent former employees from blowing the whistle on poor performance.

Lots of public sector organisations use settlement agreements, including local councils, local authorities and the NHS. Regardless of whether you work in the public sector or not, if you are offered a settlement agreement, then the advice remains the same – speak to an employment solicitor as soon as possible.

About Co-op Legal Services

Co-op Legal Services has over 600 staff working in different businesses with offices in Manchester, Bristol, Stratford-upon-Avon, Sheffield and London.

As part of the Co-op Group, our values of openness, honesty, social responsibility and caring for others are core to the service we provide.