Settlement Agreement Checklist for Employees

A Settlement Agreement is a legally binding contract between an employer and an employee that solidifies the terms under which a dispute or employment relationship is terminated. By signing, the employee waives their legal rights to bring employment claims against their employer in the future, in exchange for a financial payment or other agreed benefits. Once signed, the agreement becomes enforceable, which is why it is recommended (and in the case of employees, a requirement) for both parties to obtain independent legal advice before it is finalised. 

Understand What Claims You’re Waiving

If you’ve received a settlement agreement to sign, you’re likely coming to the end of your employment. While it might be tempting to get what can be a difficult situation over and done with, you have rights, potentially some bargaining power, and the legal entitlement to independent advice usually funded (or at least contributed to) by the employer, which you need to exercise to ensure you understand the terms and effect of the settlement agreement. By signing the agreement, you give up the ability to bring claims such as unfair dismissal, discrimination, or breach of contract. It’s crucial, therefore, to make sure you understand whether you may have grounds for a claim and the implications of signing a settlement agreement on your legal rights.   

The settlement agreement needs to identify to the particular claims you are waiving. Some rights are commonly excluded from the waiver, for example certain personal injury claims and pension rights. It is therefore imperative to have a solicitor assess the contract before even considering signing it to ensure you understand what rights you are “signing away”. 

Assess Your Proposed Benefits Carefully

These benefits may come in the form of payment in lieu of notice, holiday pay, bonus or commission, ex gratia compensation, or redundancy pay. Employees may be able to negotiate for a higher figure in some of these areas, especially if the tax position is such to bring down the total settlement value. Ex gratia payments are generally tax-free up to £30,000, but contractual or statutory payments such as notice pay and bonuses are taxable through PAYE. They will therefore have tax and National Insurance contributions deducted. Make sure you are aware which payments are taxable and tax free under the agreement so you can consider whether it’s a fair amount for what you’re sacrificing.

Confidentiality and Restrictive Covenants

Many employees don’t realise they may already be bound by restrictive covenants (non-compete, non-solicitation), and what settlement agreements often do is simply reinforce your existing contractual obligations. However, settlement agreements can sometimes seek to extend the timescales for these restrictions or seek to introduce new ones. For example, an employee who signed an employment contract years ago with a six-month non-compete clause might find that their settlement agreement extends this restriction to 12 months and adds a non-solicitation clause preventing them from approaching former clients. This could significantly impact your future job prospects, and additional compensation should therefore be offered in accordance. With a breadth of experience in handling deals like this, Glaisyers ETL can help you assess whether the restrictions are fair, enforceable, or negotiable, potentially future proofing your career. 

Take Your Time

Employees must not feel pressured, threatened, or rushed when signing a settlement agreement. Behaviour of this sort from an employer can potentially render the entire agreement invalid. If your settlement agreement has followed a pre-termination discussion/protected conversation, ACAS guidance states that you should have a period of 10 days to obtain legal advice on a settlement agreement. You should seek support if at any point you feel that you are being pressured into signing a settlement agreement prematurely or under duress.

Check List 

Here are a few items to consider when reviewing your settlement agreement for the first time.  

• • Have I checked every payment I’m owed? 

• • Do I understand what legal claims I am giving up? 

• • Are there any restrictive covenants limiting future job options? 

• • Have I been given enough time to consider the offer? 

• • Have I taken independent legal advice (paid for by my employer)? 

How Glaisyers ETL Supports Employees

With extensive experience supporting employees across Manchester and the Northwest, we provide settlement agreement advice and can help you to negotiate deals and challenge unfair or oppressive terms. You can expect quick, clear, and jargon-free guidance to help you through the process from start to finish. 

Speak to our employment law specialists today to protect your rights and secure the best possible outcome.