Settlement Agreements for Employers

In the exciting and sometimes challenging world of employment law, there’s one tool that I often recommend to business owners and managers: settlement agreements for employers.  So, what exactly are these documents and why are they so valuable?

What Are Settlement Agreements?

Settlement agreements are like the Swiss Army knives of employment law. They are legally binding contracts between an employer and an employee. They’re used to resolve disputes and to establish an agreement when an employment relationship is about to end. The employee generally agrees to waive their right to bring legal action about specific issues, usually in return for a financial settlement.

The Importance of Settlement Agreements in the Workplace

Now, you may be asking yourself, why are settlement agreements so important? Well, they offer benefits to both sides. They provide certainty, protect business reputation and avoid the costs and stress associated with an employment tribunal. From the employee’s perspective, they receive a financial settlement and avoid the uncertainty of legal proceedings.

Settlement Agreements Discussions: Key Steps

The key to a successful settlement agreement is in the discussion phase. Here’s how I recommend you handle it:

  1. Initiate the discussion in a fair, open, and transparent manner. It’s essential to make it clear that the discussion is exploratory and not a definitive decision.
  2. Address the key points – what’s the reason for the proposed settlement agreement, what are the terms and what are the next steps if the employee agrees to consider the proposal?
  3. Keep it confidential. Both sides must agree that the conversation is ‘off the record’.

settlement agreements for employers

The Legal Aspects of Settlement Agreements

Onto the legal stuff. There are certain legal requirements to ensure the settlement agreement is enforceable:

  1. It must be in writing.
  2. It must relate to a particular complaint or proceedings.
  3. The employee must have received independent legal advice from an adviser on the terms and effect of the proposed agreement and its effect on their ability to pursue that complaint or proceedings before an employment tribunal.

Remember, ignoring these legal requirements can lead to the agreement being void, so it’s best to tick all the boxes.

How to Draft an Employment Settlement Agreement

When it comes to drafting, keep it simple, clear, and unambiguous. Here’s what I suggest you include:

  1. Parties involved: Clearly identify the employer and employee involved.
  2. Claims: Specify the complaints or proceedings that the employee can’t pursue after signing the agreement.
  3. Financial settlement: Include the agreed-upon financial sum, how and when it will be paid.
  4. Confidentiality clause: An agreement that neither party will disclose the terms of the agreement, subject to certain exceptions.
  5. Termination date: If the agreement is ending employment, specify when employment will terminate.

employers settlement agreements

Navigating the Negotiation Process of Settlement Agreements for Employers

Negotiation can feel like a game of chess, but with the right strategy, you’ll have a better chance of checkmate.

First, prepare for the negotiation by understanding your needs and those of your employee. Be willing to compromise but know your limits. Conduct the negotiation professionally and respectfully, focusing on the problem, not the person. Once you’ve reached an agreement, make sure it’s recorded in writing.

The Role of Legal Advice in Settlement Agreements

I can’t stress enough the importance of getting legal advice when dealing with settlement agreements. Not only is it a legal requirement, but it also ensures that you understand the implications of the agreement. Choose a solicitor who specialises in employment law – they’ll be best placed to guide you.

Settlement Agreement Pitfalls to Avoid

As with anything, there are common pitfalls when it comes to settlement agreements. The big ones I’ve seen are employers not following the correct legal procedures or trying to rush the process. Remember, it’s crucial to get the employee’s agreement to enter into a settlement discussion before starting the conversation. Moreover, don’t forget that the employee has the right to get independent legal advice. Bypassing these steps may make the agreement unenforceable.

Settlement Agreements for Employers: FAQs

In my years of practice, I’ve heard a lot of questions about settlement agreements. Here are some common ones:

  1. Is the settlement agreement tax-free? – Partly. Payments up to £30,000 relating to the termination of employment can usually be made tax-free, but specific conditions apply.
  2. Can an employee change their mind after signing the agreement? – Once signed, a settlement agreement is generally binding. If an employee wants to back out, they’ll need legal advice.
  3. What if the employee breaches the agreement? – If an employee breaches a term of the agreement, such as a confidentiality clause, you may have a claim against them for breach of contract.


In conclusion, settlement agreements are a powerful tool in an employer’s toolkit, offering a way to resolve disputes effectively and maintain a positive workplace environment. Of course, every situation is unique, and the steps here may need to be adapted to fit your circumstances.

If there’s one thing I hope you take away from this, it’s the importance of seeking legal advice when dealing with settlement agreements. It can help ensure you’re fully aware of your rights and responsibilities and help protect your interests.

I encourage you, as business owners and managers, to use this knowledge to improve your workplace relations. And remember, I’m always here to help navigate the complex world of employment law, one article at a time.

Don’t hesitate to reach out if you need professional advice when dealing with settlement agreements or any other aspect of employment law. You’ve got this!

Call John Bloor at EBS Law on 01625 87 4400 if you are an employer and need free Employment Law Advice.

Settlement Agreements.