A guide to settlement agreements

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Settlement agreements, or what were formerly known as compromise agreements, are legally binding documents which can be used to end employment or settle a dispute.

Knowing what to do when you’re asked to sign a settlement agreement, and understanding your rights, can be confusing. We’ve prepared this guide to steer you through the process.

Why would I be asked to sign a settlement agreement and do I have to agree?

You may be asked to sign a settlement agreement to record your agreement to not pursue legal action against your employer when ending an employment relationship or, as stated above, to resolve a dispute. You don’t have to agree to the settlement agreement you’re given and you can negotiate – read more on that below.

If you don’t sign the agreement, it is deemed invalid and you are then able to continue any potential legal claims against your employer or end your employment in another way.

What will I receive in the agreement and can I negotiate?

In return for signing a settlement agreement, you will usually be offered a compensation payment. If you’re not happy with the terms in your agreement, you do have the right to negotiate; a specialist settlement agreement lawyer can explain the terms you are being offered to help you to decide whether it is right for you to sign them.

Do I need legal advice to sign a settlement agreement and who will pay for this?

Yes, for the settlement agreement to be binding and lawful it must be signed by a lawyer. Appointing a specialist in settlement agreements will also ensure you have someone who can explain in full what the terms of the agreement mean for you.

The cost is of legal advice should be covered by the employer and stated in the terms of the agreement.

Can I tell anyone about the agreement?

Settlement agreements often contain a confidentiality clause to stop the agreement and terms being discussed with any third parties. A lawyer can however help to ensure the agreement isn’t too restrictive in many cases.

Can I still ask for a reference after signing a settlement agreement?

Although there’s no legal requirement for an employer to give you a reference, a clause can be included in the settlement agreement which confirms that they will provide a reference and when this can be expected.

Have you ever been asked to sign a settlement agreement? What was your experience?

Author bio: Thompsons Solicitors has a nationwide Settlement Agreement Unit (SAU) comprising lawyers with extensive experience in advising and supporting people to secure the best settlement agreement possible.

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