Settlement Agreements – employers increasingly see the benefits

Settlement Agreements – employers increasingly see the benefits


When the furlough scheme came to an end in October this year, significant redundancies were anticipated. Whilst this has not been the case thus far, we have seen in its place a significant rise in enquiries about Settlement Agreements.

Many employers are still facing considerable difficulties with loss of revenue, changing working practices and, as a result, are looking to make reductions to their workforce. Settlement Agreements are increasingly being seen as a useful way of exiting an employee from the business in a mutually beneficial way and without the need for a lengthy redundancy and consultation process. Employers recognise the benefit of taking swift action and the ‘clean break’ approach ensures no legal action can subsequently be taken by the employee.

What is a Settlement Agreement?

A Settlement Agreement is a legally binding contract that is used to terminate an employment contract in a mutually acceptable way for employer and employee. As a result of the Agreement, the employee waives any right to take legal action against the employer and usually receives some form of financial compensation.

What does a Settlement Agreement contain?

The Settlement Agreement sets out the specific terms and conditions agreed between the employer and employee. These can include:

  • Any payments to be made to the employee and the tax implications of these
  • Leaving arrangements –confirmation of any required notice period and the date of termination of employment
  • Waiver by the employee – against taking any form of legal action against the employer post-termination of employment
  • Confirmation of legal advice –the employee must have received independent legal advice
  • Confidentiality clause – to stop the agreement becoming common knowledge and prevent reputational damage
  • Restriction of activity – to stop the employee from poaching customers or staff or competing with the employer’s business
  • References – in respect of future employment applications

Are Settlement Agreements just for redundancy situations?

Whilst Settlement Agreements are often used in a redundancy situation, they can also be used in other circumstances where an employer wishes to bring an employment to an end, such as:

  • Job performance issues
  • Disciplinary situations
  • Grievance situations – harassment, bullying etc
  • Long term ill health
  • Significant personality clashes affecting the workforce

Pictons offer practical, responsive support

Settlement Agreements can be of significant benefit to both the employer and employee provided they are handled correctly. At Pictons, we work closely with employers to get to know their firm and ensure we have a clear understanding of their business objectives.

Terminating employment and dealing with redundancies can be a difficult and stressful time. We aim to take away that stress and find a carefully negotiated solution that makes commercial sense; meets the needs of both parties; ensures no further legal action can be taken against the employer; and ultimately results in a more amicable conclusion to the termination of employment.

For advice and support with Settlement Agreements, or any other employment law matters, please contact us:

T: 0800 302 9448