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In this article one of our specialist employment solicitors, Chris Hadrill, answers the question: What should be included in a settlement agreement?” and explains what employees should look out for in their settlement agreement

  1. Why use a settlement agreement?
  2. Why do employers offer settlement agreements?
  3. What should be included in a settlement agreement?

Why use a settlement agreement?

Settlement agreements are a form of contract which allow employers and employees to settle potential claims that the employee may have arising from their employment or the termination of their employment. They allow both parties to the settlement agreement to clearly understand what their responsibilities, to outline what payments the employee can expect to receive upon termination of their employment, and to confirm that the employee will not pursue litigation against the employer once the settlement agreement has been signed.

Why do employers offer settlement agreements?

Employers offer settlement agreements for a variety of reasons, including:

  • To settle an existing dispute with an employee (for example, if an employee has raised a complaint that they think that their redundancy is unfair or that they are being discriminated against then the settlement agreement may be intended to limit the employer’s liability in respect of those threatened claims);
  • To avoid having to go through a potentially laborious capability process or to avoid dealing with grievances, subject access requests etc.;
  • To allow the parties to have a clear and easily-understood outline of exactly what was agreed upon termination; and/or
  • Because it may simply be what the particular employer does in such situations

What should be included in a settlement agreement?

The following clauses should normally be included in a settlement agreement:

  • A clause specifying what date your employment will terminate on;
  • A clause outlining what the outstanding balance of your salary, bonus, commission, and holiday pay should be;
  • A clause specifying that a ‘termination payment’ will be paid to you and what the value of the ‘termination payment’ will be (this can normally be paid tax-free as compensation for termination of employment, up to a maximum of £30,000);
  • Standard confidentiality clauses protecting the reasons for terminating employment, the fact of the settlement agreement, and the terms of the settlement agreement;
  • A ‘non-derogatory’ clause which would prevent both parties from making adverse or derogatory comments about the other;
  • A clause confirming that the employer will pay the employee’s legal fees up to a certain amount (normally £500 plus VAT);
  • A ‘waiver’ clause confirming that the employee is agreeing to waive any and all claims that they may have arising out of their employment and the termination of their employment (although there are some exceptions to this, such as claims for latent personal injury and accrued pension);
  • A clause entitling the employee to a specific form of reference once their employment has terminated;
  • A clause confirming that the employee must receive independent legal advice from a ‘legal adviser’ (such as a solicitor)

There are, of course, other clauses which can also be included in a settlement agreement, and what will need to be included in each settlement agreement will depend upon the specific circumstances of each case.


Redmans Employment Team deal with employment matters for both employers and employees, including drafting employment contracts and policies, advising employers and employees on compromise agreements, handling day-to-day HR issues, advising on restructures, and handling Employment Tribunal cases for both employers and employees Call 020 3397 3603 to speak to one of the members of our employment team or email us on enquiries@redmans.co.uk. Redmans have offices in Richmond, Chiswick, Hammersmith, Fulham, Kingston, Wimbledon, Ealing, Kings Cross and Marylebone (meetings strictly by appointment only).

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    I have been very pleased with the support I got from Redmans Solicitors on my case with my employer. Caroline has always helped me to put things in perspective and showed me different scenarios ultimately to help me taking the right decision. She was very professional and always available when I needed, and at the same time also emphatic which I found also really important to establish a strong relationship. Will definitely recommend!

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    Prompt and efficient response to my enquiries. Excellent negotiating skills with my employer which considerably improved the terms of my settlement agreement.

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    Sacha was extremely helpful in my matter. I would not hesitate you use Sacha or Redmonds again. Everyone was very helpful.

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    I had Mel Chin helping me with a settlement and she was very professional and reliable throughout my case. Mel provided me with a good understanding of what was happening and gave suggestions on routes I could take. My case was resolved and closed promptly although the opposing side were very difficult to deal with. A very big thank you to Mel and Chris.

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    Jackie C

    My first ever experience needing the services of a solicitor; cannot speak highly enough of Mel and Chris’s personable, reassuring and straight to the point advice in dealing with my settlement agreement. They put me at ease during an extremely stressful time. I am equally as happy with the outcome, as l am their professional services.

    Posted 2 weeks ago


    Really happy with the service. All very efficient. Mel rattled through things very fast, however was great whenever I needed to stop and ask a question! Would definitely return to Redmans if I ever needed Legal advice.

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    Peter F

    Very helpful and clear advice, would highly recommend.

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    William A

    Second time I have had to use Redmans. They did not disappoint. They are fast , efficient and friendly. I have already recommended them to friends and colleagues. I hope I dont have to use them again but if I have to , they are the solicitors for me.

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    Great service with tantastic communications. The solicitor responsible is extremely knowledgeable and was responsible for bringing a timely and desired solution.

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    Veronica M

    Extremely helpful, starting from a request for advice at very short notice, to dedicating time for me to understand and review all documents thoroughly.

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    Very efficient and professional service. Chris was very empathetic, knowledgeable and personable. Highly recommended.

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    Melanie M

    Very happy with the detailed advice provided from Redmans. They also helped me to secure a higher settlement than originally offered by my employer and were extremely diligent. I first spoke with Chris at relatively short notice and then Sacha dealt with my case. Would definitely recommend and use again in the future if needed.

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    Redmans helped me with a work related issue, which was resolved quickly and professionally. I would definitely recommend this company.

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    Great people, really friendly and professional helped with everything that I needed.

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    My case was handled by Sacha who was very thorough and helped me to achieve a good outcome with my employer. Sacha was very personal, professional and helped me during quite a stressful time, so I am hugely grateful to her and to Redmans. This was my first time engaging with a law firm so I wasn't sure what to expect but I can definitely say that it was a good experience overall and I ended up better off due to having the help of an experienced and proactive solicitor on my side.

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    So grateful that I contacted Redmans to deal with my Redundancy Agreement. Everything from the initial call to the completion of the matter was professional, efficient and effective. I was listened to, had everything explained simply and kept informed of every step. I received super advice and the costs were very competitive. I would highly recommend them to anyone seeking similar help. First class service - thank you

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