When you sign a settlement agreement, you will usually be giving up your right to bring certain legal claims against your employer. In exchange, your employer will typically offer a financial payment or other agreed terms, such as an agreed reference, notice arrangements or an agreed leaving date. Settlement agreements are most commonly used when employment is coming to an end, although they can also be used to resolve workplace disputes while employment continues. Their purpose is to provide certainty for both parties by settling the claims covered by the agreement.

The specific rights you give up will depend on the wording of the settlement agreement. It is therefore important to understand exactly what claims are being settled before deciding whether to accept the offer.

Which employment claims are usually waived?

Most settlement agreements contain a list of employment claims that will be settled once the agreement has been signed. These commonly include claims for unfair dismissal, breach of contract, discrimination, unlawful deduction from wages, statutory redundancy pay, and other claims arising out of your employment or the termination of your employment.

A settlement agreement should clearly identify the particular claims it is intended to settle so that both parties understand the scope of the agreement. However, not every right can be waived. For example, employees generally retain the right to bring claims for personal injuries that were not known about when the agreement was signed, enforce the terms of the settlement agreement itself, and exercise certain statutory rights that cannot lawfully be excluded. Understanding which rights are being settled, and which continue after the agreement has been signed, is an important part of deciding whether to accept the offer.

Why do you need independent legal advice?

A settlement agreement will only be legally binding if certain legal requirements are met, including that you receive independent legal advice from a qualified adviser. During your appointment, your adviser will explain the terms of the agreement, identify the claims you will be giving up, and ensure you understand the legal effect of signing it before they sign the relevant adviser’s certificate.

In many cases, employers make a contribution towards the cost of this legal advice, although they are not legally required to do so. If the employer's contribution does not cover the full fee, you may be asked to pay the difference.

Should you negotiate before signing?

Receiving a settlement agreement does not necessarily mean you have to accept the first offer. Depending on your circumstances, there may be scope to negotiate the financial settlement payment, as well as other terms such as notice pay, accrued holiday pay, bonus arrangements, an agreed reference or post-termination restrictions.

Before deciding whether to sign, it is important to understand what payments you are already entitled to receive under your contract or by law, and which payments are being offered as part of the settlement itself. This will help you assess whether the overall package is appropriate and whether there is scope to negotiate improved terms.

Once a settlement agreement has been signed, the claims covered by the agreement will usually be settled permanently. Taking independent legal advice before signing gives you the opportunity to understand your legal position, assess whether the proposed terms are appropriate, and negotiate improvements where necessary before making your final decision.

For more information, please contact us on 01524 907100 or info@pre-law.co.uk