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A settlement agreement brings to an end claims such as, unfair dismissal or discrimination arising out of an employee’s employment or termination, other forms of simple agreements signed by employers will not prevent an ex-employee from bringing a claim.
It is important to note that settlement agreements should only be used in circumstances where there are potential claims to be resolved and where there is a genuine dispute in place between the parties. It is not sufficient to rely upon a written or oral agreement between your business and the employee as this will not rule out the possibility of ex-employees bringing claims at a later stage. If executed properly a settlement agreement will remove the risk entirely of any claims being brought at a later stage by an ex-employee.
If you would like to speak to a member of our specialist employment law and HR support team in relation to any aspect of the settlement agreement process please call us on 0161 696 6170 or complete our online enquiry form and we will contact you directly.
Employers can also fall into some difficult traps relating to the taxable position of severance payments which is not always straight-forward. Our specialist settlement agreement for business solicitors can guide you through this process whether on a small or large scale basis.
Settlement Agreement: A legally binding agreement between an employer and an employee which resolves any potential claims the employee may have, usually in return for a financial payment or other agreed benefits.
Stephensons offers comprehensive legal support to employers who are considering or implementing settlement agreements. Whether you’re managing individual employee exits or coordinating a larger-scale redundancy or reorganisation, our team provides clear, strategic guidance tailored to your business.
We assist at every stage — from drafting bespoke agreements and advising on compensation terms, to handling negotiations and ensuring compliance with employment law. Our experienced solicitors work alongside your HR team to reduce risk, support sound decision-making, and ensure smooth and legally compliant outcomes that protect your organisation’s reputation.
Stephensons is a nationally recognised law firm ranked among the UK’s top 150 legal practices, with a longstanding reputation for delivering practical, commercially focused advice to businesses across a wide range of sectors. Our employment law solicitors are specialists in their field, supported by one of the largest legal teams in the country.
The firm holds multiple Law Society accreditations, is regulated by the Solicitors Regulation Authority, and is consistently recognised by independent legal directories such as The Legal 500. With over 250 staff across several offices, we combine the reach and resources of a national firm with the personal service of a local practice. Clients choose us because we’re responsive, results-driven and deeply committed to providing legally sound, business-savvy solutions — all delivered with clarity, confidence and care.
Not exactly. While settlement agreements are often used in redundancy situations, they can also be used in other contexts such as resolving disputes, disciplinary exits, or long-term sickness absences. A redundancy agreement may form part of a wider settlement agreement.
No, signing a settlement agreement is entirely voluntary. An employee is under no obligation to accept the terms, and they must receive independent legal advice before signing for the agreement to be legally valid.
Yes, settlement agreements can be offered as a way to manage an amicable parting of ways, even where no formal dispute exists. They are often used proactively to avoid potential issues and provide clarity for both parties.
A typical agreement will include the termination date, any payments being made (such as compensation, notice pay, and accrued holiday), confidentiality clauses, reference terms, and a waiver of legal claims. It may also include post-employment restrictions and a tax indemnity clause.
It is standard practice for the employer to contribute to the cost of the employee’s independent legal advice, as this is a legal requirement for the agreement to be binding. This contribution is usually a fixed amount and is stated in the agreement.
In most cases, no. Once a settlement agreement has been signed and is legally binding, the employee waives their right to bring most employment-related claims against the employer. However, there are limited exceptions, such as claims for personal injury not known at the time or claims relating to accrued pension rights.
If an employee chooses not to sign the agreement, then the usual employment processes must continue, such as redundancy consultation, disciplinary proceedings, or performance management, depending on the situation. The employee retains their full legal rights, including the right to bring a tribunal claim.
If you would like to know more about how we can assist your business with settlement agreements, please contact us on 0161 696 6170.
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