Settlement Agreements

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Led by mediation specialist Russell, employees and employers alike can benefit from our comprehensive employment support and advice service. Russell’s expertise in TUPE means we are able to offer a specialist employment law service to our clients. 01268 692 255

What is a Settlement Agreement?

A settlement agreement is a binding contract between the employer and employee which is created to ease the process of employment termination. These are often created if an employer is not happy with the employee’s performance or the employee thinks circumstances have changed and the job role is no longer a good fit. These agreements, if negotiated correctly, should have a beneficial outcome for both the employer and employee. They can include specific terms to ensure the employee leaves the business quietly, doesn’t discuss the reasons for their departure or agrees not to work for competitors and to ensure the employer agrees to the financial recompense which will be paid and what will be communicated to the business as the reason for the employee leaving.

It is important to note that if you sign a settlement agreement and accept its terms, you are relinquishing your right to make a claim against your employer at a later date, in a Court or an Employment Tribunal and remember, you cannot be forced to accept a settlement agreement. It has to be mutually agreed so it is important to know what should be included.

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What Should be Covered in the Settlement Agreement?

Each Settlement agreement will vary depending on the industry in which you were employed and the job role you held. However, there are some basic factors that should be considered for inclusion.


A mutually agreed figure should be reached which you will be paid upon leaving. This may be a lump sum, several month’s salary and/or pension contributions. As guidance, a general rule of thumb is that this figure would equate to approximately six month’s salary.

Confidentiality clause

A confidentiality clause will stop either party from discussing the other in a negative context, to anyone inside or outside of the business, once employment has ceased.

Restrictive covenants

These may be necessary depending on the industry involved but they can prevent the employee from working for competitors for an agreed amount of time, after employment has ceased.


Under a settlement agreement it can be requested the employer provides the employee with a reference. This should most certainly be included as an employer is not generally obliged to provide a reference when employment ceases.


With a settlement agreement in place your purported reason for leaving can be mutually agreed and circulated within the business, alleviating the stress and worry of what might be communicated.

Who Pays for the Legal Advice?

A settlement agreement is not legally binding unless independent legal advice has been sought. However, as this agreement is in the interest of both parties’ involved, employers will usually agree to cover a proportion of the costs. You will find a contribution of between £200 and £500 is common.

Once your settlement agreement is in place, the employer should also give the employee a minimum of 10 days to decide whether they want to accept the agreement.

To discuss any costs or for further settlement agreement legal advice contact our team here at Hook and Partners.