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Settlement agreements glossary

If you have been presented with a settlement agreement at work, there may be several terms used that you may be unfamiliar with. Here we have listed a number of common terms used in settlement agreements and their meaning. 

Before signing any settlement agreement, you must have had independent legal advice, either from a qualified employment law solicitor or an authorised trade union representative. The professional giving you the legal advice must be identified in the agreement and have indemnity insurance. Generally, legal fees are paid for by your employer, however, if you wish to negotiate further on the agreement itself, you may have to meet this cost yourself. If you need legal advice or help with negotiating your settlement agreement, contact our employment solicitors today on 0161 696 6170.

Settlement agreement - this is a legally binding document often given by an employer to an employee to either end an employment relationship or settle a dispute. If you are presented with a settlement agreement by your employer, you will need to seek legal advice before signing the document for it to be legally binding.

Compromise agreement - is what settlement agreements used to be known as. It is no longer used as an official term. 

Confidentiality - under section 111A of the Employment Rights Act 1996, the terms and conditions and any negotiations of a settlement agreement may be kept confidential. This means you must not reveal the information in the agreement to anyone, unless there are exceptions outlined in the agreement (e.g. partner/spouse or a professional advisor).

Garden leave - also known as gardening leave, this is when an employee may be asked or obliged to stay at home during their notice period, rather than attend their normal place of work. As you are still contracted to your employer there will be certain criteria that you will have to adhere to. For example, you cannot start another job during a period of gardening leave. 

Ex gratia payment - this is a ‘goodwill’ payment made by an employer to an employee, which the employer is under no obligation to pay. The term ex gratia is derived from the Latin term ‘out of kindness’ or ‘by favour’. When an ex gratia payment is made as part of a settlement agreement this is usually made without admission of liability.

OT tax code - if, as part of your settlement agreement, the compensation is more than £30,000 then tax may have to be paid. This is generally charged at the OT tax code rate.

ACAS - ACAS is an independent public body that provides free and impartial advice to employers, employees and their representatives on employment rights, policies and disputes. They are seen as an authority on settlement agreements and their guidelines are the basis for how settlement agreements are conducted in the UK.

Payment in lieu of notice - also known as PILON, is when your employer pays your salary and, in some cases, benefits, for the duration of your notice period, but you are not required to work during that time. You are usually able to start another job straight away in these circumstances.

Restrictive covenants - when used regarding employment, restrictive covenants are generally used as post-termination restrictions either in an employment contract or as part of a settlement agreement and generally mean that an employee may be restricted about where or with whom they work with next. It may also restrict them in starting their own business if that business would be competing against their former employer. If the settlement agreement you have been presented with has restrictive covenants, then ensure you are being properly compensated for this. You can ask your legal representative to advise you on the fairness of such clauses and whether or not they can be enforced.

Non-compete clause - this may be a clause in a settlement agreement that forbids an employee from 'competing' against their employer. It may mean you cannot work for a competitor, set up a business that competes with your ex-employer or work for a current client of your ex-employer. Typically, there is a time frame on these clauses.

Waiver of claims - this means you are losing your right to bring any legal claim outlined in the settlement agreement against your employer. However, there are certain conditions where this is not applicable.

Without prejudice - this is a term used to describe negotiations that cannot be used in a tribunal or court.

Termination date - the date an employee‘s contract of employment ends.

Unambiguous impropriety - this is the term used if there is a behaviour that would mean that the ‘without prejudice’ principle no longer applies. This would mean that pre-termination negotiations that take place in the context of an existing dispute may be used in evidence in a court or tribunal.

Improper behaviour - what would constitute improper behaviour can vary and is for a tribunal to decide. However, examples of improper behaviours include harassment, bullying, physical violence, victimisation etc. Improper behaviour would also mean the ‘without prejudice’ principle would not apply.

For expert legal advice contact our highly qualified and experienced settlement agreement solicitors today on  0161 696 6170.


  • What are settlement agreements?

    Martha McKinley explains what a settlement agreement is, the importance of expert legal advice - whether an employee who has been offered a settlement agreement or from the perspective of an employer.

    Martha also provides guidance on the sort of thing a settlement agreement will include along with information on the cost of legal advice and the timescales involved.