A Settlement Agreement is an agreement between an employer and employee to settle any matters, usually before the employee leaves their employment. The employee effectively waives their right to make a claim against the employer/go to a tribunal and usually gets paid a sum of money known as a settlement. Sometimes Settlement Agreements are entered into to resolve an issue between the parties and the employment continues thereafter.

In what circumstances would a Settlement Agreement be used?

There are a number of circumstances where an employee could be offered a Settlement Agreement, including:

  • where their role could be heading for redundancy;
  • where the employee is incompetent in their role;
  • where there has been a dispute between the employer and employee which has not been resolved another way;
  • where the employee is going to or has brought a claim for constructive or unfair dismissal and the employer offers to settle.

If you are offered a Settlement Agreement you should get advice from a Solicitor as soon as possible. They can check the terms and guide you on whether to negotiate, accept or refuse the agreement, depending on your circumstances. They will also be able to advise on whether the settlement sum is correct or if you should be asking for more.

S111A Employment Rights Act 1996 applies to pre-settlement negotiations in unfair dismissal or constructive dismissal cases. In such cases, all pre-settlement negotiations are confidential and without prejudice to any claim that may follow.

Terms of a Settlement Agreement

The employer should ideally have a human resources and/or legal department that deals with any Settlement Agreements and has systems and checks in place to ensure that all the correct terms are included. Not every employer will have this structure in place and therefore they should consult a solicitor to assist them. Solicitors can help set up the agreement and negotiate the settlement with the employee and their solicitor.

The employee must be allowed to obtain independent legal advice under the agreement which the employer must pay for. The solicitor will advise whether the settlement agreement proposed is fair to the employee and/or whether they should negotiate a better deal.

The agreement will be confidential and both parties will not be allowed to disclose any part of the agreement to any third party.

The agreement should include details of all contractual payments including salary, holidays etc, any settlement sum due and a payment schedule.

The agreement will contain a waiver that the employee will not make any further claims against the employer.

The agreement may contain other clauses prohibiting the employee from working for any competitors or taking any clients from the employer.

Both parties will need to agree and sign the agreement. Therefore, before signing, it is crucial that the employee gets independent legal advice to ensure that they are getting the best deal for them.

Breach of the Settlement Agreement

If a breach of the agreement occurs either party can sue for breach of contract in the County Court, or the employee could bring the claim at an Employment Tribunal.


Settlement Agreements are being used more and more as a way to keep claims out of the courts and keep costs lower. If you are offered a settlement agreement there are a lot of factors to consider so it is essential to obtain independent legal advice from a solicitor who will be able to ensure that your interests are protected.

If you or someone you know wants more information or needs help or advice, please contact us on 0151 318 7500 or email [email protected].