What is a settlement agreement - Paul Doran Law

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What is a settlement agreement

What is a settlement agreement?

Want to know what a settlement agreement is? First, note that in Northern Ireland it’s called a Compromise Agreement (that used to be the name elsewhere in the UK too).

We’re employment lawyers based in Belfast, Northern Ireland, and with offices in Leeds, London and Newcastle to cover England, Wales and Scotland. We only ever act for employees, never for employers.

A settlement agreement is a legal contract, and you must take independent legal advice before you sign one. In most cases, your employer will cover these legal fees, so you don’t have to worry about the cost.

Definition of settlement agreement

Let’s look at the words from a common-sense point of view:

Settlement is whatever you accept to settle the dispute with your employer. It might be compensation, a reference, reinstatement into your job, or something else you want in return for them treating you badly. (You might have heard the phrase ‘settling on the court steps, but ideally you’ll reach agreement before it gets to that point).

Agreement means what it says – you and your employer agree to do specific things. They might agree to pay you a sum of money in settlement, for example, and, in return, you agree not to take them to the employment tribunal.

If you (or your employer) breach the agreement, you are breaking the law. If it’s a ‘material breach’, you might have to repay some or all the money you received, for example.

When you might be offered a settlement agreement

Employers generally don’t like having to go to the employment tribunal as it involves a lot of cost, time and hassle. That’s why they will usually prefer to settle any dispute and avoid you taking your claim any further. It’s like a ‘clean break’.

You might be offered a settlement agreement when:

Those are just a few examples. Usually, a settlement agreement is used when the employment is coming to an end or when there is some kind of dispute between the employee and the employer.

What’s in a settlement agreement

To be valid, the settlement agreement has to be made in writing. It should include:

In addition, there might be restrictive covenants. That means your employer wants to restrict you from doing certain things, such as setting up a competing business in the local area, working for a competitor, or poaching their staff or clients. Usually, there will be a time period when the restrictions apply.

We can help ensure the restrictions are reasonable. For example, they should not be more onerous than stated in your contract of employment. We might be able to get the restrictions reduced, or even removed.

If you’re leaving your employer, you might want them to write you a favourable reference to help you get a new job. This costs them nothing, and so it’s one of the points that you can request in your negotiations.

Your employer might insist that you can’t talk badly about them in public (a non-derogatory clause). You might want them to agree to do the same in return.

It’s possible that the settlement agreement will include a clause mentioning Data Subject Access Requests (DSAR) – that’s when an employee (the data subject) requests access to data the employer holds about them. Under data privacy laws, you do have the right to see such data held about you, but not if your requests are malicious in that you just make them to cause disruption for your employer.

There is likely to be an ‘entire agreement’ clause. This means that everything in the agreement is written in the agreement. It doesn’t cover emails or conversations that are not in the agreement. You therefore need to be careful about that. Don’t assume anything.

The ‘waiver of claims’ clause is where you agree not to make future claims about the same thing.

Confidentiality clause

A confidentiality clause is quite normal in a settlement agreement.

You will probably find your employer wants you to keep the settlement agreement confidential, so you mustn’t tell anyone else how much you were awarded. You might not even be allowed to tell anyone that an agreement was negotiated and reached. That’s why you might also have heard it referred to as a Non-Disclosure Agreement or NDA. For example, you can’t sell your story to the media. If you do, your employer could sue you for breach of contract and damages. You might want to be able to tell your immediate family and perhaps a future employer, so you’ll need to get the clause adapted to allow this.

The confidentiality aspect doesn’t apply if something happens afterwards e.g. ongoing harassment, a crime, or you ‘blow the whistle’ about a health and safety issue. This would be called a ‘protected disclosure’.

What to do before you negotiate a settlement agreement

As with any legal dispute, what’s in writing carries most weight. Get your paperwork in order, including your original contract of employment, staff handbook and any other relevant documents. Make notes of what was said, when and by whom. Save emails. Keep records of any meetings.

If you have a dispute with your employer, first try to settle it amicably and informally by talking to your line manager or HR department.

If that doesn’t work (or you’re not happy to do that), go through the company’s grievance procedure. You’ll find it in your staff handbook.

Then you should try mediation through Acas – they have a standard Code of Practice which your employer should follow. By doing so, you might be able reach a COT3 agreement rather than going any further.

If you want to make a claim at the employment tribunal, you’ll need to build a strong case with the support of an experienced employment lawyer.

You can contact us for help and advice at any stage. This might only happen to you once in a lifetime, but we’re used to negotiating settlement agreements – we do this all the time – and we will (metaphorically) hold your hand to take the stress away and get you the best deal.

Negotiating a settlement agreement

Note that you don’t have to accept your employer’s initial offer of settlement. Don’t agree to anything in a hurry. You should be allowed around 10 calendar days to think about it. They should not bully you, intimidate you, harass you or put you under any pressure to agree their offer.

Let’s face it, they are likely to offer as little as possible while you’ll want as much as possible. That doesn’t mean you can be greedy for the sake of it. You can negotiate an amount that’s fair to both parties and that reflects the value of your individual case. We can help with that.

Negotiating can be stressful so you can take a colleague or union representative with you to any meetings. They can take notes for you, and their support might help take the emotion out of it.

Compensation is usually paid within 7 to 21 days or on your usual salary payment date.


There’s some more legal jargon you’ll need to be familiar with. For example, an initial meeting might be held as a ‘protected conversation’ or ‘without prejudice’ or ‘subject to contract’.

A ‘protected conversation‘ under section 111A of the Employment Rights Act is one where you and your employer start talking about the settlement without either side being committed to anything. It applies to off-the-record conversations about the the exit of an employee, even where there is no dispute between the parties. For example, where there are allegations of poor performance.

The phrase ‘without prejudice‘ is a similar thing. It means that anything said in the meeting or written down cannot be used later in the tribunal or in court.

Protected and without-prejudice conversations do not protect your employer from a charge of discrimination, nor automatic unfair dismissal.

Subject to contract‘ means that nothing is finalised until both sides have signed the settlement agreement. After that, it becomes legally binding.

Note that the first £30,000 of any compensation above your contractual entitlement is known as an ‘ex gratia payment‘. This is usually free of deductions for tax and national insurance. If HMRC decides that tax is due, then it’s your responsibility to pay it.

What this means to you

As you can tell, settlement agreements are not straightforward, and every situation is different.

Waiving your right to bring a claim is a serious consideration, which is why it’s only recognised in law when a solicitor signs it off.

We can also tell you the chance of winning a claim, and how much you might be awarded. We can help negotiate the terms of the settlement agreement, and advise whether you can add a claim for injury to feelings, discrimination or unfair dismissal ( for example).

The initial conversation is free, so give us a call on 0808 168 7288 or complete a Free Online Enquiry.

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