“Breaking up is never easy!” – Settlement Agreements19th August 2019

Settlement Agreements – Employment Law’s Clean Break Divorce?

Settlement Agreements are often used when an Employment relationship turns sour. So, what are they? And are they a good idea?

What is a Settlement Agreement?

Settlement Agreements were called “Compromise Agreements” until July 2013 & some people still refer to them by their old name.
Essentially, a Settlement Agreement is a confidential legally-binding contract which brings an Employment relationship to an end.

What does a Settlement Agreement contain?

A Settlement Agreement is a formal contract and will contain a number of terms & conditions. They can therefore be quite long & complicated. Typically though a Settlement Agreement will mean:

• The employee agreeing to give up his/her Employment Law rights to bring claims & promising not to start or continue with an Employment Tribunal or Court claim (although there are exceptions).

• Payment of an “ex-gratia” or “termination” payment to the employee. The amount of the payment will vary a great deal. However, the payment should reflect the risk to the employer of the employee winning an Employment Tribunal or Court claim.

• An agreed written employment reference.

• The Settlement Agreement itself stays confidential. Because of this sometimes the media refers to Settlement Agreements as “NDAs” (non-disclosure agreements). However, again there can be exceptions.

What about legal costs?

The employee must receive independent legal advice before s/he can agree to the Settlement Agreement. Because of this the employer will usually offer to make a contribution to the employee’s legal costs in obtaining advice about the Settlement Agreement. At EMG Solicitors, this contribution will mean that we will offer a big discount on the cost of our advice to an employee & (depending on the size of the contribution) can mean that our legal advice is free.

So, are Settlement Agreements a good idea?

Settlement Agreements can be a much easier, cheaper & less stressful way of resolving difficult work situations than going to an Employment Tribunal or Court.

Settlement Agreements can also work well – both for employers & employees. A fair Settlement Agreement will mean that both the employer and employee know where they stand and can allow both to move on and make a new start. However, it is vital that both parties obtain good legal advice.

How can EMG help?

Matthew Sigsworth in our Dispute Resolution & Litigation Team has over 10 years’ experience in Employment Law. Whether you are an Employer or Employee, please do not hesitate to contact Matthew on 0191 323 3949 or matthewsigsworth@emgsolicitors.com and he will be happy to help.


This article contains only general legal information. The legal information in this article is not advice and you should not rely on it as an alternative to obtaining legal advice from EMG Solicitors Ltd or any other provider of professional legal services.