Settlement Agreements

(previously known as Compromise Agreements)

A settlement agreement between an employer and an employee can be an effective way of resolving a contractual issue or potential dispute, but can also create legal problems of its own if it is not drafted correctly. At Clough & Willis, we can provide the independent legal advice you need to ensure that any settlement agreements you sign provide certainty and protection. 

If your employer has asked you to sign a settlement agreement, the specialist solicitors at Clough & Willis will help you to decipher its legal intricacies, making sure that the terms are favourable to you. We will provide representation every step of the way, answering any questions you may have. 

At Clough & Willis, we understand that employment law issues like this can be stressful, which is why our friendly and knowledgeable solicitors pledge to handle your case with the utmost care and diligence, helping you achieve the best possible outcome. 

To receive expert advice on a settlement agreement, call us on 0800 083 0815, or fill in an online enquiry form and we will be in touch at a time that is convenient for you.

How we can help

At Clough & Willis, we are experts on all aspects of employment law pertaining to settlement agreements. We can provide you with guidance and clarity on the entire legal process, and your rights and responsibilities. 

We can help you in the following ways: 

• Talking you through the legal stipulations of the settlement agreement, and what the consequences of signing it will be
• Ensuring you understand the legal issues involved in your case, and how the terms of the settlement agreement will affect your ability to pursue a claim against your employer
• Advising on any potential claims that you may have against your employer, including its chances of success
• Offering guidance on whether the compensation that your employer is offering to pay will be adequate for the claims involved 

Our legal team has years of experience in helping professionals to understand settlement agreements. With offices in Bolton and Bury, we have worked with clients across the North West and beyond, and will provide you with pragmatic advice on what to do next.

What is a settlement agreement?

A settlement agreement is a legally binding agreement between an employee and an employer. It is used to document the terms that have been agreed between both parties when your contract of employment is terminated, or where your employment is continuing but a dispute needs to be resolved. 

Usually, the employer will pay the member of staff a sum of money in return for the employee’s agreement to waive any claims that may otherwise have been pursued in an employment tribunal or court. The agreement is designed to provide certainty for both the employee and the employer: the worker will receive compensation within a fixed period, and the employer will know that they can not bring a claim against them. 

However, in cases where the settlement agreements are overly generic and have not been properly tailored to the parties involved, or in cases where the circumstances or legal requirements have not been met, the courts will often rule that the agreement is not enforceable.

Why do I need a solicitor?

In order to use a settlement agreement to settle the claim or claims you have made against your employer, the following criteria must be met: 

• The agreement must be in writing
• The agreement must relate to a specific complaint that you have raised
• You must receive independent legal advice, covering the terms and effect of the proposed settlement agreement, including its effect on your ability to continue proceedings before a tribunal 

As such, taking advice from a legal professional is considered an essential part of the overall process. This means it is vital to seek out a solicitor as soon as possible to make sure you have received the right information.​​​​​​​​​​​​​​

FAQs About Settlement Agreements

What are the advantages of settlement agreements?

Settlement discussions will not always be possible in cases of a legal dispute between an employer and an employee. However, if you have the option to pursue a settlement agreement, this can have several key advantages over taking your case to court, or other means of resolving the dispute.

By reaching a settlement, parties avoid the costs associated with litigation, including legal fees, court costs, and other related expenses. This can be particularly beneficial in complex cases, where the costs can escalate quickly. Court cases can be expensive and take a long time, but by negotiating and pursuing a settlement, you can often secure a clear and agreed resolution of the dispute more quickly. Once such an agreement is signed, it usually prevents further claims related to the dispute from being brought, which delivers finality and peace of mind for both parties.

Alongside time and cost savings, settlement agreements allow the parties to retain more control over the resolution of their dispute. In litigation, the outcome is usually decided by a judge and is subject to uncertainty - but in a settlement, terms are mutually agreed upon. This gives both parties the opportunity to propose creative solutions that would not be available through court judgments. As such, the terms of a settlement agreement can be tailored to the specific needs and circumstances of each party involved. This flexibility can include aspects like payment plans, return of property, confidentiality clauses, and other specific provisions relevant to the parties’ needs.

Because the basis of a settlement is a mutual agreement, companies can often maintain better relationships with workers through this process. This is vital if the dispute does not bring an end to the working relationship between the parties. In fact, settlement agreements are ideal for employment matters because reputation and privacy are typically important concerns. Settlements can contain a confidentiality clause that keeps their terms private, whereas court proceedings are public.

With all of these factors in mind, solicitors will often pursue a settlement agreement before looking at other avenues of dispute resolution. Some employment contracts mandate a form of alternative dispute resolution, but this may also be avoided by (or result in) reaching a settlement agreement.

How much can you receive in a settlement agreement?

The amount you can receive in a settlement agreement varies widely depending on the specifics of the case. Settlement agreements are commonly used in employment disputes, where each case has different factors that will affect a settlement payment. You should seek legal advice about your individual circumstances for more specific guidance on compensation.

Below, we have provided some of the factors that are considered when calculating a financial settlement in the context of an employment dispute.

Employment Disputes

In an employment dispute, the settlement amount typically depends on:

• The employee's salary and benefits
• Length of service
• Circumstances of the departure - i.e., if the departure involves potential wrongful dismissal, discrimination, or unfair dismissal claims
• Notice pay
• Redundancy pay
• Compensation for future losses related to loss of employment
• Ex gratia payments, where applicable

Employers may offer settlement agreements that take some of these factors into account, but not all of them. Your solicitor can advise you on whether or not your employer's offer is fair, or whether you should expect more. This is because the value of a settlement agreement is situational and depends on the specific context of each dispute.

Negotiating the best possible terms demands professional advice from lawyers who are experienced in employment law. The team at Clough & Willis can evaluate the individual factors of your claims in their legal context to determine how much compensation you could be owed. We strive to effectively negotiate on behalf of every client to secure the maximum amount of compensation to which they are entitled.

Will I get more money with a settlement or a tribunal award?

Whether you are likely to receive more money from a settlement agreement or a tribunal award depends on the specifics of the case, the negotiating power of your solicitor, and the costs associated with going to a tribunal.

Settling can save on legal costs because it is usually faster. Accounting for this saving, a settlement agreement may represent a bigger award even if you are offered a lower gross amount than you would receive from a tribunal claim. This time saving also means that you can receive an earlier payment, which can enable you to avoid paying for your costs out of your own pocket.

Finally, settlements provide more control over the outcome. Both parties can negotiate terms that are mutually agreeable without the unpredictability of a tribunal decision. This means that your solicitor can fight to secure a fair compensation amount for you, without the involvement of a third party (such as a judge).

It is important to note that a tribunal may award higher amounts of compensation in some employment dispute cases. There may be statutory penalties involved or and compensation may account for things like discrimination or unfair dismissal. Tribunals can award compensation for actual losses and sometimes additional sums for punitive reasons.

On the other hand, tribunal awards can be limited by statutory caps, such as the statutory maximum that applies if you make an unfair dismissal claim. This does not apply to all cases - discrimination claims are not subject to a maximum - but you should bear it in mind before deciding to settle.

In legal proceedings, the likelihood of you securing fair compensation depends on the strength of your case and the evidence your solicitor is able to collect. The team at Clough & Willis will advise you on all of the relevant statutory provisions and legal costs associated with each approach, to help you decide whether a tribunal or settlement agreement will deliver the best result for you.

Is a settlement agreement legally binding?

A settlement agreement is legally binding once all parties have agreed to the terms and signed the document. It carries the weight of a contract and is enforceable by law, provided certain conditions have been met with respect to the terms of the agreement.

For example, both parties must agree to the terms voluntarily, without coercion or undue influence. They must have the legal capacity to do so, meaning that they are of legal age and sound mind. The agreement must be in writing and should specify the particular complaints or proceedings that it is settling. It needs to outline the terms of the settlement, including what each party is agreeing to do or refrain from doing, and there must be some form of consideration involved, as this is fundamental to the definition of a contract under UK law. This latter part means that each party must receive something of value - it could be a monetary payment, the cessation of legal proceedings, or any other benefit agreed upon.

Situations in which a settlement agreement is not enforceable include those in which there are problems with the document itself or the circumstances under which it was signed. For example, if an employee signed the agreement based on false information, or was forced or unfairly pressured into signing, it may be invalid. If you feel that you were pressured into settling rather than pursuing an employment tribunal claim, for example, there may be further legal options open to you. If the agreement involves illegal terms it will also be considered invalid under UK contract law. You should always work with an experienced solicitor when considering a settlement agreement to make sure that it is fair and that you agree to the terms without undue pressure.

Further, drafting the document correctly, meeting every relevant legal obligation and ensuring that all parties understand the terms is crucial to a settlement agreement’s effectiveness as a legally binding contract. Legal advice from an expert dispute resolution solicitor can help to make sure that the document serves its intended purpose, and that any additional clauses are included. For example, if you wish to keep the terms of the agreement confidential, it should contain legal language to this effect.

How can a solicitor help with a settlement agreement?

Solicitors play a fundamental role in representing both the employer and the employee in any dispute. In employment tribunal disputes, parties should have their own independent legal counsel. The responsibilities of a solicitor include everything from the initial phase of negotiation over the terms of the agreement, to drafting the document, to finalising the process. The team at Clough and Willis can support you in a number of important ways during the process of a dispute.

We provide legal expertise and support to make sure that the agreement is fair, legally compliant, and effectively meets your needs. We can explain your legal rights and obligations within the settlement, including any potential claims and the effects of waiving your right to those claims. This can help you to decide whether the offer is fair and suitable for your needs. Our solicitors can also examine the specific provisions of the document and highlight any areas that may be of concern.

If there are problems with the agreement - including anything from the terms of confidentiality to any termination payment you have been offered - we can highlight these and help you to consider the implications of your decision. The Clough & Willis team has a wealth of experience in negotiating on behalf of clients, through which we aim to secure more favourable terms and conditions. Our knowledge of legal standards, negotiation strategies and best practices supports this work.

The solicitors will take responsibility for drafting the document, or for amending it to address the specific concerns, needs, or priorities of their client. In this process, they will need to ensure that the settlement agreement complies with relevant laws and is drafted clearly, to avoid the risk of potential misunderstandings or further disputes. Where there is scope for future claims or issues to arise, the solicitors will address this within the agreement to make sure it acts as a final resolution to the dispute.

In some cases, it is a requirement for anyone involved in an employment tribunal hearing to have received legal advice - otherwise, any settlement agreements may be invalid. Your solicitor will also help to meet other requirements, like managing the formalities of signing the agreement and securing witnessing signatures, if necessary. If there will be tax implications for a financial settlement, your legal representative can discuss these with you in advance and help you to avoid any unexpected liabilities.

The experts at Clough & Willis can not only support you with all of the aforementioned services but, looking ahead, can advise you on how to make a settlement agreement work effectively, and how to implement the relevant terms. If the agreement is breached, we can guide you on the best course of action. This might involve mediation, further negotiation, or litigation. We will always represent your interests and aim to make sure the outcome of any further disputes is the best possible resolution for you.

What terms should I ask for in a settlement agreement? Can there be non-financial terms?

While many people are primarily concerned with financial settlements, an agreement of this nature can include terms of all kinds. When negotiating a settlement agreement, you should consider both financial and non-financial terms that align with your specific needs and objectives. A well-rounded settlement agreement can address various aspects of the dispute, provide comprehensive closure for all parties involved, and restrict future activities relating to the dispute.

Some of the terms you may wish to consider include:

Financial Terms

• Compensation: This includes any payments that are owed to you, and may include unpaid wages, bonuses, or commissions.
• Severance pay: In cases of employment, severance pay compensates the former employee for the loss of their job. The amount varies based on factors like length of service, position held, and company policy.
• Redundancy payment: If applicable, any statutory redundancy payments must be correctly calculated and included.
• Pension rights: Address any impacts on the employee's pension, particularly if the termination of employment might affect contributions or benefits.
• Tax indemnity: Sometimes, the taxation of settlement sums can be complex. There may be scope to negotiate over who bears any potential extra tax liability if the payments exceed the tax-free threshold.

Non-Financial Terms

• Reference: In employment disputes, an employee may wish to ask for a reference to facilitate future job searches. You might specify the content of the reference or that it should only be given in writing. Alternatively, you may be able to restrict what parties can say to future employers about the dispute.
• Confidentiality: Both parties might agree not to disclose certain information about the settlement or circumstances leading to it. This could include the terms of the settlement, company information, or personal information.
• Non-disparagement: These are clauses that prevent both parties from making negative statements about each other, and they can protect your reputation and relationships.
• Reinstatement of services: In some contexts, you might negotiate the continuation of certain benefits or services, such as health insurance, for a specified period after the agreement takes effect.
• Restrictive covenants: If existing covenants in an employment contract restrict your future employment opportunities, you might negotiate their removal or alteration. For example, you may be able to have a non-compete clause waived.
• Return of property: Terms can specify the return of company property, such as laptops, phones, or vehicles, and personal items left at the workplace. These terms may be proposed by either party.
• Training and support: Particularly in job transition scenarios, you might ask for support like career counselling, job placement services, or funding for training programs to help with future employment. There is no guarantee that these terms will be accepted by the other party, but working with a lawyer who is experienced in negotiation can improve your chances of securing an agreement that suits your needs.

You can determine what types of terms to include by considering your objectives and your leverage to negotiate. For instance, if securing future employment is a priority, focus on obtaining a positive reference and career transition support. If you believe that you have the legal right to claim compensation but you agree not to pursue this, you may have the leverage to get a better result from your settlement agreement. Your negotiating power depends on the strength of any claims you have, the circumstances of your dispute, and your knowledge of the other party's needs and pressures.

Working with a solicitor during this process is often the best way to make sure your needs are met. Whatever you want to achieve with a settlement agreement, the team at Clough & Willis can offer legal advice on the viability and enforceability of specific terms. We can also help you to identify your priorities and understand how best to create a sound legal document that meets your needs.