What is a ‘settlement agreement’ and why are they being talked about?

settlement agreement


Most commentators now see us heading into a toughening economic climate which may well result in reduced demand for goods and services. This is compounded by the strains placed on many businesses who have had to restrict activities due to the recent virus outbreak. We have seen the Government take action to keep people in their jobs through the ‘furlough scheme’ however, this is being scaled back and some businesses are faced with the need to reduce their employee numbers. Increasingly there are discussions around redundancy and ‘settlement agreements’ but what are they?

In simple terms a settlement agreement is where an employer and an employee agree terms for ending employment. They are often used when redundancy is being considered or if an employer thinks an employee is not performing as they would expect. Once agreed employment comes to an end.

These types of agreement were previously referred to as compromise agreements however, compromise agreements were primarily for workplace dispute resolution.

All settlement agreements vary but they will typically cover the payments to be received and the relevant tax issues. It is a requirement for employees to receive legal guidance on the agreement, something that is normally paid for by the employer. The solicitor can advise on the nature of the agreement and whether there are grounds for a claim against an employer, such as discrimination or unfair dismissal. If employment has to come to an end a settlement agreement provides a fair mechanism which represents the best interests of both employee and employer.

Employees do not have to sign a settlement agreement but it is worth considering if they will then face a redundancy process, or in some cases, disciplinary procedures. If they do sign the agreement then it usually means that the employee will give up the right to bring any kind of claim against the employer in return for a payment.

Pictons regularly acts for both employers and employees drafting settlement agreements and is able to advise on the content and represent the best interests of the client.

If you are considering offering an employee(s) a settlement agreement or if your employer has suggested this course of action please contact us.

T: 0800 302 9448

E: info@pictons.co.uk