A settlement agreement is a legally binding agreement whereby a current or former employee agrees to waive or settle all possible claims against their employer. This is often in return for a payment which is usually made shortly after termination of employment.

The purpose of the agreement is to record the full settlement terms. It will include written details of any financial payments which are being made and a list of the claims that are being waived. The agreement will also set out other important details governing the arrangement. It is highly likely that the agreement will include a confidentiality clause. This means that you should not discuss the terms or existence of the agreement with anyone else.

Terms that are negotiated through settlement agreements can often represent a better financial outcome from that which the employee may achieve through issuing a case an employment tribunal. This is partially due to the uncertainty and ‘litigation risk’ of issuing a claim at a tribunal. However, it can also provide the employee with control over specific terms, such as a reference or an agreed announcement. These are terms that can be extremely valuable to an employee.

In addition, by entering into a settlement agreement, the employee can avoid the financial and emotional burden of proceeding to issue a claim at an employment tribunal.

Generally speaking, settlement agreements can be concluded relatively quickly. If you are happy with the terms of the proposed agreement, your solicitor should be able to finalise the agreement within a few days. In some cases it can even be concluded on the same day. Obviously, if there are further negotiations needed then this will mean that the process takes longer. The timeframe is usually dependant on how quickly your employer responds. Your solicitor will be able to keep you updated on this.

If you have a particularly short or specific deadline, your solicitor will do their best to accommodate this. It is helpful if you let them know the timescales at the start of the process so that they are fully aware.

As a starting point, you should carefully read through the settlement agreement. A settlement agreement can only become legally binding once you have taken independent legal advice on the terms. This means that you are required to take a copy of the agreement to an employment law solicitor. Your employer may put you in touch with a solicitor or you may be able to choose a solicitor.

You will then attend a meeting with the solicitor (this can be conducted remotely or via a telephone call), which will typically last between 1-2 hours, depending on the circumstances and any questions you may have. The purpose of this meeting is for the solicitor to advise you on the terms of the proposed agreement. The solicitor will also advise you on its effect on your rights to pursue any employment claims before an employment tribunal. The solicitor will normally be required to sign a certificate to confirm that they have given the requisite legal advice to you.

To ensure that you get the most out of your meeting, it will be helpful if you bring along a copy of your contract of employment. Alongside the financial clauses, there are other important provisions set out within the clauses in the agreement. Your solicitor will explain what each clause means and can answer any specific questions that you may have.

No. Settlement agreements are completely voluntary and their terms must be agreed by both parties. Once the agreement has been signed by you and your employer it will become a legally binding document.

You should not sign the settlement agreement if you do not wish to do so. If you do not sign the settlement agreement your employer will not pay you the compensation sum and your employer may look to commence a formal process with you depending on the circumstances.

Also, as outlined below, it is common for your employer to pay a contribution towards your legal fees in obtaining advice.  However the payment of this contribution to normally conditional upon you signing the agreement.  Therefore if you decide not to sign the agreement you will need to personally pay for the fees incurred in obtaining advice on the settlement agreement.

The legal role of your solicitor is to explain the terms and effect of the settlement agreement itself. However, your solicitor will also be able to advise you on the merits of any potential legal claims you may have against the employer. This could involve considering if you could have an unfair dismissal claim or any discrimination protection. This will help you to establish whether you are being offered a fair settlement package.

If you would like to negotiate on the financial package that you have been offered, your solicitor will be able to discuss this with you. The decision to negotiate will involve weighing up the employment rights you are waiving against the benefit of the compensation you are receiving. You may also wish to negotiate the specific wording of certain clauses. This is something that your solicitor will be experienced in advising you on.

The settlement agreement will not be legally binding until it has been signed by both parties. This means that, prior to both parties signing, it would be possible for either side to change their mind or withdraw from the process.

However, once the agreement is binding, it cannot then be cancelled or changed without the consent of both the individual and the employer.

In the vast majority of cases it is not necessary for a settlement agreement to entered into as a deed and witnessed. However, this will depend on the specific drafting of the agreement and the terms that are being proposed.