As the ongoing financial impact of Covid-19 takes its toll, businesses are being forced to make redundancies. Those being let go are often offered a settlement agreement, a legal agreement between employer and employee. Settlement agreements provide  a payment in return for an undertaking not to pursue a legal claim against an employer.

A settlement agreement is an onerous document, waiving important legal rights, and it is essential that both sides take legal advice before signing. Because employees will be waiving important legal rights, they will need to take legal advice from an employment solicitor or trade union rep before signing. The agreement will not be valid without their sign-off.

The corporate climate 2020

Despite the best efforts of the government to protect jobs and the economy, the pandemic has caused widespread turbulence in the commercial world. With the Coronavirus Jobs Retention Scheme ending, businesses are taking a realistic look at their future.

Empty street post Covid-19


For many, particularly in hard-hit industries such as hospitality, leisure, travel and retail, tough decisions are being made. In other less affected areas, management teams are still reorganising and reassessing how many staff they need and what their roles will be in the new working environment.

The result will undoubtedly be the loss of many jobs. For the employer, there is a risk of legal action from an employee who may feel they have been unfairly chosen for redundancy or may have a grievance. A settlement agreement allows the employer to avoid this and effectively pay the employee an enhanced redundancy amount in exchange for a ‘clean break’.

Settlement agreements  also gives the employer the chance to end employment quickly, by avoiding the full redundancy process which involves consultation periods and review procedures and can be costly in terms of time.  Our article, Settlement agreements – everything you need to know provides more information.

What is a fair settlement agreement?

In redundancy cases, it is worth ascertaining whether your position is going to be replaced in whole or in part. If not, it will probably be hard to argue against a genuine redundancy situation. Compensation will also potentially be limited to the amount of time it takes to run a fair consultation process, plus the statutory redundancy amount.

However, you may have been chosen for redundancy from a group of people – some of whom are being made redundant and some of whom are not. In these cases, it may be possible to challenge your selection, particularly if your experience is better than those remaining, or you believe you were chosen because of discrimination or victimisation.

The ‘value’ of unfair dismissal

When negotiating a settlement with an employer, it is essential to take settlement agreement advice. Redundancy law is complex and it is important to ensure that everything to which you are entitled is included in the agreement.

A structured settlement would usually include some or all of the following elements:

  • A notice payment, if you will be leaving before working out your notice period;
  • A compensation payment for losing your job, to include redundancy payments to which you may be entitled;
  • Bonus and/or commission that may be due to you;
  • Unused holiday pay;
  • An enhanced redundancy payment which higher than the minimum statutory amount. Calculate your statutory redundancy entitlement.
  • Information about when any medical insurance or other similar benefits will end.

The amount offered will usually be calculated by looking at factors such as the length of your employment, the reason for offering the settlement agreement and the difficulties that might be encountered if a settlement agreement is not made, such as the length of time it might take to go through an alternative process or the cost and time involved in dealing with an employment tribunal.

Employees at work

It is a legal requirement that anyone signing a settlement agreement seek advice from employment solicitors or other specified adviser such as an accredited trade union rep to ensure that they understand the implications of the document. Your solicitor will also be able to deal with settlement agreement negotiations if you do not wish to do this yourself . Your employment solicitor will seek an improved offer and ensure that a fair sum is paid to you. They will also see that there are no unfair terms you are not happy with . For more information about negotiating a fair settlement, see our article Settlement agreement negotiations.

Additional settlement agreement terms

As well as the financial element, a settlement agreement will include a number of terms binding both you and your employer. The following are some of the most commonly included:

  • Provision of a good reference to give to potential new employers. This is preferable to a standard factual reference which would merely refer to the dates you were there, job title and other basic facts;
  • Tax indemnity, which might cover you in the event of a tax demand in respect of your employment, to include interest, penalties, expenses and costs;
  • Confidentiality clause, to prevent any information about the settlement agreement or surrounding issues from being discussed;
  • Non-derogatory clauses, preventing either party from making derogatory statements about the other;
  • Payment of the employee’s legal fees, which are normally funded at least in part by the employer;
  • Agreement of the wording of any formal announcement that is to be made about your departure from the company;
  • Agreement that the employee will provide reasonable assistance to the employer in the event that information or evidence is required about something which occurred during the employee’s time with the business.

All of the above should be carefully worded and considered before the agreement is signed to ensure that the employee understands and is happy with the extent of their liability and rights.

Settlement agreement handshake

Who pays the legal fees?

Because it is a legal requirement that an employee seek independent legal advice before signing, the employer usually pays the employee’s legal costs of the settlement agreement advice plus the VAT. This will be capped at a certain amount and is usually sufficient only to cover employee legal expenses directly related to the employment solicitor signing the agreement off, and not negotiating a higher amount of money or changed terms. As with the rest of the agreement, this clause relating to payment of fees is negotiable.

Getting the best outcome

It is important to ensure that your settlement agreement covers everything you wish to receive, as it constitutes a final break with your employer and you will not be able to bring proceedings against them after it has been signed.

A major part of the agreement relates to the redundancy settlement. Your employment solicitor will be able to discuss with you whether you have been offered a fair sum in the circumstances and explain the situation regarding any settlement agreement tax to ensure that this is taken into account.

There are certain criteria that must be met when a settlement agreement is made and your solicitor will check that all necessary clauses have been included and all issues fairly addressed.

A settlement agreement is usually beneficial to both employer and employee, allowing them to make a clean break and part with certain assurances on both sides.

Contact us

At Springhouse Law we have extensive experience of negotiating and agreement settlement agreements and redundancy payments.

If you have been offered a settlement agreement and you would like independent advice to ensure it is in your best interests, our experienced employment law solicitors will be happy to help. Contact us today by ringing 0800 048 5888 or fill in our contact form. Our team is ready to give you clear, accurate advice.

Share this update on

Contact Us

  • Drop files here or