Specialist solicitors for settlement agreement matters.

What is a settlement agreement?

A settlement agreement is a legally binding contract between an employee and employer where both parties mutually agree to terminate the employment relationship and contractually agree not to make any future claims against each other.

This is one of the most common ways of ending an employment relationship and often involved a financial payment from the employer in exchange for the employee releasing their claims against them.

Things to know about settlement agreements:

Settlement agreements offer certainty and a “clean break” for both parties, removing uncertainty and any grievance processes. For you as an employee, it offers a secure agreed-upon termination package.

You are legally entitled to independent legal advice, typically paid for by the employer. This ensure that you fully understand the agreement’s implications, an advisor will not only explain the agreement but also find opportunities to improve the financial offer.
Settlement agreements follow a standard procedure, so they comply with statutory requirements. This includes termination payment details (notice pay, redundancy, etc.), confidentiality clauses, non-complete causes and release of claims.

Our employment lawyers provide independent legal advice on settlement agreements that is experienced, practical and often on the same day, we help you understand your rights, options and whether there is room to negotiate a better outcome.

What is a likely amount of compensation I would receive?

From dealing with many settlement agreements each year, the typical amount offered by employers is between 2-4 months gross salary, over and above contractual and statutory entitlements. This is higher for employees working in London’s financial sector institutions.
Are payments that I receive taxable?

Payments related to ending your employment, like notice pay, redundancy pay, and payments in lieu of notice (PILON), are generally taxable. Any amount exceeding £30,000 becomes taxable. Unpaid wages and holiday pay are considered earnings and taxed like your regular salary. Payments for actual physical or psychiatric injury sustained during employment might be tax-free.
Are settlement agreements only used as part of workplace disputes?

No, they can also be used to ensure a rapid and harmonious termination where redundancy might be necessary or for other reasons. While these agreements are final in nature, there is an exception for personal injury claims that neither you nor your employer are currently aware of. This commonly applies to latent conditions such as asbestosis, where symptoms may not emerge for many years.

Other useful pages

Dismissal

Including wrongful, unfair and constructive dismissal.

Discrimination

Including, but not exclusively, race, gender and sexual orientation.

Contractual and advisory

Legally binding agreements.

Harassment

(Un)intentional unwanted conduct against yourself.

Whistleblowing

Raising concerns against your employer’s actions.

TUPE

Protecting your rights when the business you work for changes owner.

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