Does your employer have to give you a reference as part of the settlement agreement?

There are certain standard terms which have to be included in a settlement agreement for it to be valid, such as the fact that you have received independent legal advice, but it is up to you (and your advisor) to negotiate and agree the particular terms of your settlement agreement that are relevant and important to you.

While it is common for a settlement agreement to include a term which states that your employer will provide a reference for you, there is no legal requirement to do so. You must make sure one is included.

You will also want to ensure that the specific wording of any future reference is set out and that your employer will agree not to use any other words when providing a reference. You can find more information about your employer’s duty to provide you with a reference in the article: Can your employer give you a bad reference?

Employees shaking hands over settlement agreement

Can a settlement agreement restrict your ability to get work?

In certain limited circumstances, yes. The agreement may contain restrictions which prevent you from working for someone else for a period of time, e.g. a direct competitor, finding employment which could damage your ex-employer if it were disclosed, or a job that could lead to the poaching of clients, colleagues or suppliers from your former employer. These types of clauses are known as restrictive covenants.

Before you agree to any new restrictive covenants, you should check your original contract of employment to see whether any such restrictions are in place, and then compare this to what you are being asked to agree to in the settlement.

Alternatively, your employer may simply ask you to confirm that you agree to continue to be bound by the restrictive covenants in your employment contract. This can be an onerous restriction on your ability to get a new job.

It is very important that any restriction on you should not be too onerous: it should not restrict you for too long or be too wide, in terms of preventing you from getting work in an entire industry. This can be a complex legal area; we can’t stress enough how important it is to take advice on any such restriction before you agree.

You may also be asked to confirm in the agreement that, at the time of the agreement, you do not have a new job. The reason for this would be that it could affect the amount of money to be paid to you (for example, if the sum to be paid was agreed on the basis that you may be out of work for a couple of weeks or months).

Restrictive covenants should not restrict you for too long (generally no more than six months) or be too wide, in terms of preventing you from doing any type of work across an entire industry. This can be a complex legal area; we can’t stress enough the importance of taking advice on any such restriction before you reach agreement. It may be possible to agree an amendment to an existing restrictive covenant, or to get your employer to waive them altogether as part of the settlement.

Typed service agreement document

My settlement agreement prevents me from finding work – what can I do?

For a settlement agreement to be legally binding, you must have sought professional legal advice before signing, and that advice should have included consideration for any restrictive covenants which seek to prevent you from working. This can make it very difficult to unpick a settlement agreement if you later consider it to be too restrictive. You would certainly need to take further advice in this situation or risk being in breach of contract if you took a position which you were prevented from taking in the agreement.

What about my financial situation while I look for work?

One of the main provisions of a settlement agreement is nearly always a payment of compensation to you (in addition to any salary or benefits you are owed at the date of termination). Once again, this is something that needs to be agreed between the parties. When negotiating the payment, you need to consider any time that you may be out of work. If you intend to work through your notice period, you may want to negotiate a certain amount of paid time off to attend interviews. A lump sum payment of up to £30k, paid under a settlement agreement, may be tax free.

Close up of woman making negotiation sums on calculator

Who pays for the cost of getting legal advice when reaching a settlement?

By convention, the employer normally contributes towards the employee’s legal fees but there is no rule which says they must do so. This is commonly between £250 and £500. In particularly contentious situations, where there is a lot of negotiation, this will not cover all the legal costs; individuals will need to pay for these out of their own pocket. It is always worth asking the employer if they will increase their contribution.

What if your new employer wants to know about your old employment?

It is not uncommon for a settlement agreement to include a confidentiality clause, which stipulates what you can and cannot disclose to a third party. Once again, the precise terms can be negotiated and you need to think carefully about whether you want to be able to discuss the circumstances in which you left your employment with any future employer.

If your settlement agreement does not contain such a clause then you are free to disclose this information. It is advisable not to disclose specific information about your ex-employer, as data protection issues may arise around personal information. You may also still be covered by implied terms of confidentiality regarding certain types of information. It should be possible to answer questions in a general, non-specific way and not be misleading in any way.


Need advice on your position after accepting the terms of a settlement agreement? About to consider going through the process of arranging a settlement with your current employer? At Springhouse, our experienced and knowledgeable legal team is ready to assist you with any questions you may have. Feel free to get in touch today.

Published in…

Updates: For employers: Settlement agreements | For employees: Exit package |
Tagged with: Settlement agreements |

Share this update on

Contact Us

  • Drop files here or