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Chris Hadrill, a specialist employment solicitor at Redmans, explains what settlement agreements are and why employers offer them to employees.

Settlement agreements: what are they?

Settlement agreements are a type of contract that is used to settle actual or potential claims that employees may have against their employer arising out of their employment or the termination of their employment; they are also sometimes (in rare cases) used by employers to also settle potential claims that they could have against current or former employees.

Settlement agreements normally contain a reasonably standard set of obligations on the part of both the employer and the employee, as follows (please note that this is not an exhaustive list but details the most common types of obligation):

  • An agreement as to how the employee’s notice period and outstanding holiday pay will be dealt with;
  • The payment by the employer of an agreed amount of ex-gratia compensation for loss of employment to the employee (which can be tax-free up to a maximum of £30,000);
  • The provision by the employer of an agreed form of reference; and
  • In return, the employee’s agreement that they are agreeing not to pursue the employer for certain types of claim (normally any and all statutory, contractual and tortious claims, save for an excepted few)

Why do employers offer settlement agreements?

In my experience most settlement agreements are used by employers to settle potential claims for unfair dismissal by employees arising from the following types of situations:

  • An ongoing or concluded redundancy process
  • An ongoing or concluded performance improvement process
  • Where there has been a breakdown in trust and confidence between the employer and the employee
  • Where there have been allegations of misconduct made by an employer against an employee
  • In settlement of an Employment Tribunal claim threatened or brought by an employee

There can be many reasons why employers offer settlement agreements to employees – some of these are detailed and explored below. Settlement agreements are often used in the following circumstances:

  • As standard practice by the Human Resources team at an employer;
  • To set out the terms of departure with certainty;
  • To ensure a departing employee’s ongoing cooperation and assistance after they leave their employment;
  • To settle threatened or issued Employment Tribunal claims

If you’re unsure as to the reason why you’ve been given a settlement agreement then you should seek legal advice on the terms of the agreement and discuss with your legal adviser why you think you’ve been offered the agreement – your legal adviser may be able to help you shed some light on why you’ve been offered the agreement (or make enquiries with your employer to find out). However, in the absence of specific information one way or the other I generally find that it is important not to speculate about the reasons why a client has been offered a settlement agreement, as this can distract from the task of advising on the terms.

Obtaining specialist legal advice on your settlement agreement

If you’ve been offered a settlement agreement by your employer then you should obtain specialist advice from a legal adviser, such as a specialist employment solicitor, on the terms and effect of the agreement – you should generally try to obtain advice as soon as possible as employers normally set a deadline for the completion of the agreement.

About Chris Hadrill

Chris is a specialist employment lawyer at Redmans. He specialises in contentious and non-contentious employment matters, including breach of contract claims, compromise agreements and Employment Tribunal cases. He writes on employment law matters on a variety of websites, including Direct 2 Lawyers, Lawontheweb.co.uk, LegalVoice, the Justice Gap and his own blog. Contact Chris by emailing him at chadrill@redmans.co.uk

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    213 Reviews

    Gareth J

    Very efficient, helpful and pragmatic support from Caroline. Happy to work with my requirements / suggestions but also made some very good points which helped to achieve a higher settlement amount. Would highly recommend Caroline and Chris.

    Posted 41 minutes ago

    Ellen S

    Excellent, professional, timely. Friendly when I needed it most. Would recommend to anyone.

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    Ellen S

    Excellent, professional, timely. Friendly when I needed it most. Would recommend to anyone.

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    Posted 1 day ago

    Rob T

    Very professional and on target - highly recommended.

    Posted 4 days ago


    Very efficient service and knowledgeable solicitors.

    Posted 4 days ago


    Excellent response time from first contact. Quick and easy completion of documents required. Fast response to any queries I made.

    Posted 4 days ago


    Redmans Solicitors did a great job and were very professional at all times. Would definitely recommend.

    Posted 3 weeks ago

    Gary P

    All good advice, prompt and efficient

    Posted 1 month ago


    Excellent advice and customer service.

    Posted 3 months ago

    Aneet G

    I would definitely recommend Redmans. Very impressed with service provided. They were extremely proactive in handling my case which made things easier for me. Provided sound advice and resolution. Special credit for this goes to Chris who dealt with my case with great determination and consideration.

    Posted 3 months ago

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    Very efficient and friendly

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    A professional and friendly service, which I would highly recommend.

    Posted 3 months ago

    Daniel T

    Extremely helpful and made a bad situation much more manageable. Where other solicitors seemed disinterested in my situation Redmans immediately made me feel like it was a team effort to achieve a more favourable outcome

    Posted 3 months ago

    Paul T

    Excellent, quick and informative. Chris was a real star and gave me confidence during the uncertainty if a redundancy settlement.

    Posted 3 months ago

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    Felt in very capable hands was listened to and given excellent advice. Would not hesitate to recomend and use again if needed.

    Posted 3 months ago

    Rosa B

    Fabulous service all round.

    Posted 3 months ago


    Redmans were quick to respond to my enquiry and dealt with my case professionally and personably. I received sound advice and was put at ease by Chris Hadrill, Partner.

    Posted 3 months ago

    Alkhas K

    Excellent service.

    Posted 3 months ago

    Mathias G

    Contacted them regarding my end of employment agreement. Chris Hadrill dealt with it and was done and handed back to employer same day more than happy with there service.

    Posted 4 months ago

    Mark W

    Most professional from start to finish offering very a personal service. Most impressive and quick when dealing with the matters in hand.

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