What you need to know about settlement agreements

Employee signing a settlement agreement

A settlement agreement is a legally binding, voluntary contract between an employer and employee - Credit: Getty Images/iStockphoto

Sadly, the impact of the Covid-19 pandemic on businesses has led to an increase in people being made redundant. The Office for National Statistics recently reported redundancy rates have increased faster during the pandemic than during the 2008-2009 economic downturn, and with further uncertainty ahead, many employers are continuing to reduce their workforces. This has led to an increase in employees being offered settlement agreements. 

What is a settlement agreement? 

A settlement agreement (previously known as a compromise agreement) is a legally binding, voluntary contract between an employer and employee. The contract provides that an employee agrees not to pursue any claims against the employer in a tribunal or court in exchange for the payment of a severance sum to the employee. A settlement agreement may be appropriate where the employment relationship is continuing, but it is most common for these agreements to be entered into where the employment has terminated (or is about to do so).  

Since many businesses have faced financial difficulties during the pandemic, it’s likely that the use of settlement agreements will be favoured by employers. This will give employers peace of mind as it will remove any risks of employment-related claims being brought by employees and will firmly draw a line under the employment relationship.  

What should you do if your employer offers you a settlement agreement? 

A settlement agreement will not be valid unless the employee has received independent legal advice on the terms and effect of the settlement agreement, and in particular its effect on their ability to bring a tribunal claim under the relevant legislation. 

As an employee will be waiving their right to pursue any claims, the adviser will consider whether the employee has any claims and will advise on the prospects of success of those claims, along with the potential compensation a successful claim would attract. Under most circumstances, the employer usually contributes towards the cost of receiving that advice. 

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Whilst the adviser is not required to consider whether the employee is getting a “good deal”, this is certainly something that can be discussed. If the employee wishes to negotiate for an increase in the compensation payment, this is something the adviser can undertake on their behalf.

Meet Nicola Strefford 
Nicola Strefford, head of the employment team at Clapham & Collinge LLP, has over 13 years' legal experience gained in both private practice and local government. She has extensive involvement in advising on a range of employment issues to employees and has an excellent record for achieving successful outcomes for her clients.  

Nicola was recently awarded the Rising Star award in The Legal 500, the leading guide of the best law firms and solicitors in the UK. 

Clapham & Collinge Solicitors

Clapham & Collinge has a wealth of experience in advising employees on settlement agreements - Credit: Julia Holland

How Clapham & Collinge LLP can help
Clapham & Collinge's dedicated team of employment lawyers has a wealth of experience in advising employees on settlement agreements. It has advised many employees across Norfolk on the terms of their settlement agreement and where appropriate have offered support in negotiations when needed.  

One client said: “I wanted to say thank you for your expertise, support and patience during the whole process which has at times been quite difficult for me personally. It’s good to now get some resolution and I am happy with the settlement amount.”  

If you’ve received a settlement agreement and need straightforward and practical employment law advice, contact Clapham & Collinge LLP today on 01603 693500, email enquiries@clapham-collinge.co.uk or visit www.clapham-collinge.co.uk  

*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.

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