We aim to help you avoid disputes in the first place; however, if a dispute cannot be avoided we can help find the most cost-effective commercial solution for your business. We advise upon and prepare Settlement Agreements and we also provide effective representation in conciliating, mediating and/or defending or enforcing your claims in the Employment Tribunal and Civil Courts.
Talk to one of our friendly and experienced team on 01582 514000
Settlement Agreements can be used in many different circumstances; you may offer an employee voluntary redundancy, have a dispute with an employee that needs to be resolved, or you have simply agreed with an employee that their employment relationship has come to an end.
A Settlement Agreement will usually bring an employee’s employment to an end. However, it will require that the employee surrenders their legal rights and as part of the process they will be required to take independent legal advice.
A Settlement Agreement (previously called a Compromise Agreement) is a legally binding contract, often used to settle potential claims employees may have against their employer, or simply to bring the employment to an end on mutually agreeable terms.
It will typically involve the employee agreeing not to bring any Tribunal or other court claims against their employer in exchange for an agreed sum of money and/or an agreed reference or benefits. A Settlement Agreement can also be used where employment is ongoing but both parties want to settle a dispute which has arisen between them.
In order to be legally binding, a Settlement Agreement must be in writing and the employee must obtain independent legal advice on the terms of the agreement. The employer will usually offer to make a contribution towards the cost of that advice. This contribution varies according to the sums involved, the complexity of the situation and even the geographical location of the employee. We can advise you on what level of contribution to offer.
We adopt a commercial approach in advising on and preparing Settlement Agreements for employers. Of course, the monetary value in a Settlement Agreement is important however there are other significant aspects we consider in order to protect your business, for example, confidentiality provisions and restrictive covenants.
We can assist with all stages of Settlement Agreements from preparing bespoke letters to employees, scripts for managers and HR, advising on the settlement sum to be offered and negotiating and preparing effective settlement agreements. We deal with each matter on a case by case basis and ensure all Settlement Agreements achieve your objectives upon terminating an employee’s employment.
It may be appropriate to offer a Settlement Agreement where the employment relationship has broken down, where a redundancy situation has arisen or where, there is a mutual agreement to end the employment contract. A Settlement Agreement may also be a viable alternative to entering into a performance/capability review or a full redundancy process.
It is sensible to take legal advice before offering a Settlement Agreement to an employee as the discussions and documentation surrounding the offer of a Settlement Agreement may have to be disclosed to the Employment Tribunal in any subsequent proceedings brought by the employee.
Each Settlement Agreement is individual and fact-specific; however, some typical terms which are often included are:
You may already have negotiated the terms of your Agreement with the employee before seeking legal advice however our solicitors are well-equipped to assist on negotiating terms if required, either before the Agreement is finalised or following our review with you.
We will advise you on what is a fair amount taking into account the value of any potential claim the employee may have against you and the payments due in accordance with the employee’s employment contract. If the sums offered appear insufficient to the employee, either they or their independent solicitor may seek to negotiate an increase of the terms
The Settlement Agreement should provide a breakdown of the various sums offered. These will normally consist of:
In general, payments made under a Settlement Agreement which are contractual (such as the employee’s salary, notice, holiday and benefits) will be subject to tax and NI deductions. However, in general, the compensation for loss of employment paid under a Settlement Agreement is tax-free up to a maximum of £30,000. Any amounts over that cap will be subject to deductions.
We will provide guidance as to which elements of the Agreement will taxable so you have a better idea of the total payments you will be paying in entering into the Agreement.
An employee can refuse to terminate their employment on the terms offered. Normally this will be on the basis that they do not want to accept the reason given for termination or because they believe that the amounts offered are insufficient. The employee may attempt to negotiate an increased sum and we can assist with such negotiations on your behalf.
The Employment Rights Bill 2025 introduces sweeping reforms to UK employment law, including day-one unfair dismissal protection, enhanced family rights, and new duties around harassment and flexible working. Employers should start preparing now to ensure compliance.
The Employment Appeal Tribunal has ordered a rehearing in a case examining employer liability for sexual harassment outside work. The decision could have significant implications for how workplace boundaries are defined under the Equality Act 2010, particularly when incidents occur off-site or beyond normal working hours.
A tribunal has ruled that a warehouse worker was unfairly dismissed and discriminated against due to disability. Learn how Machins can help manage legal risks.
Our experienced solicitors are on hand to give you advice and assistance.
Call our team on 01582 514000 or Contact Us and we'll get back to you as soon as we can.
