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Settlement agreements are one of the most useful tools available to employers looking to resolve an issue with an employee in a permanent, legally binding way.

At Kalra Legal Group we deal with settlement agreements from both an employee’s perspective and from an employer’s perspective.

  • For Employees

  • For Employers

We can sign settlement agreements starting at £250 plus VAT.

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Settlement Agreements – For Employers

It is not uncommon that employers and their employees occasionally find themselves in disagreement. Whilst in most cases such disagreements can be easily dissipated by observing the necessary disciplinary and grievance procedures, there may be times when a more permanent resolution needs to be found. Whether looking to bring a particular matter to a close or to end an employment relationship with an employee, it is in these moments that employers may wish to consider making use of a settlement agreement.

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Fixed fee settlement agreement legal help for businesses in London, Maidenhead, Slough & beyond

Settlement agreements are one of the most useful tools available to employers looking to resolve an issue with an employee in a permanent, legally binding way.

If you are experiencing difficulties in resolving difficulties with an employee, contact the team at Kalra Legal Group to confidentially discuss your matter and find out how a settlement agreement could help.

How do settlement agreements work for businesses and employees?

Settlement agreements came into effect on 29 July 2013, essentially replacing ‘compromise agreements’. A settlement agreement is a legally binding contract that can be used to bring the employer-employee relationship to an end or resolve an on-going dispute with an employee. The utility of a settlement agreement lies in providing both the employer and employee with a mutually acceptable permanent resolution that limits an employer’s legal liability.

The substance of these agreements tends to depend on the situation in question. Typically, they waive the individual’s rights to bring a claim covered by the agreement to an employment tribunal or a court, with the individual receiving some level of financial payment in return.

When are settlement agreements most useful?

Whether or not a settlement agreement is the best way to resolve an issue with an employee will depend on the circumstances. In most cases, settlement agreements are used when there has been irreparable damage done to the employer-employee relationship, and termination of the employee’s contract is under consideration.

Settlement agreement’s are also used during redundancy to confirm the amount payable to the employee as redundancy pay, whether it be statutory redundancy pay or enhanced redundancy pay.

Alternatively, they can also be used to settle an on-going workplace issue, for example, a disagreement over holiday pay or fringe benefits.

When can I suggest the use of a settlement agreement?

The use of a settlement agreement is a matter of judgement. It is important to understand that an employer must not use settlement agreements in such a way so as to indicate any level of discrimination. Furthermore, it is also unwise to present a settlement agreement to an employee without there having been some mention of it during previous discussions with an employee, e.g. as part of a wider performance review.

It is advised that any suggestion to an employee of using a settlement agreement follows some kind of review of their work. Alternatively, their use would be preferable where both parties make it clear that there is a need for a ‘clean break’, and where there is scope for amicable terms to be agreed.

It should also be borne in mind that employees themselves may suggest making use of a settlement agreement. While this should not be agreed to or dismissed unnecessarily, employers should consider whether or not this is in the interests of their business.

What do I need to include in a settlement agreement?

The crux of most settlement agreements is to allow for an employee to leave their employment with an agreed reference and financial payment in exchange for their agreement not to raise any legal proceedings against you. This should be drafted in sufficiently clear terms so as to avoid any ambiguity.

Where there is any financial payment to be given to the employee in question, this should also be outlined in detail, both in terms of the value of the payment, whether the amount is taxable (if so, which parts of the payment are taxable) and the timetable for payment to be made.

It should be pointed out that as a matter of law employers are not required to provide a reference to employees as part of a settlement agreement. However, their provision will normally assist in the employees’ agreeing to the terms of any settlement agreement. Moreover, any reference given must be a true, accurate and fair reflection of the employee it concerns. The reference can be a factual reference which simply states the length of service the employee had at the business, or it can be a ‘glowing’ reference which goes into more detail.

What are the legalities of settlement agreements?

It cannot be underemphasised that settlement agreements are legal documents that must be entered into voluntarily. Therefore, before they can be used, there are certain requirements that must be satisfied before they will be legally valid:

  • It is vital that the terms of any settlement agreement presented to an employee are in writing and are the subject of independent legal advice. You should encourage your employee to seek this advice from a lawyer familiar with the use of settlement agreements. This is also important from an employer’s point of view, given that an employee will only be able to agree to waive their rights to raise a court or tribunal claim, where they have been fully advised of this by their own legal advisor.
  • Employers must also keep in mind that employees are not obliged to accept the terms of their settlement agreement. Indeed, it is wise to adopt the mind-set that the first draft of the agreement may well be rejected, and for employers to be prepared to enter into some kind of negotiation where the circumstances warrant it.
  • As a practical point, employers must ensure that both they and their employees sign any settlement agreement: it will not be valid and enforceable unless it bears the signatures of both parties.

What follows from a settlement agreement being signed?

If both you and your employee are able to agree the terms of a settlement agreement, and both sign the document, the agreement will be legally valid.

It is then proper for you to notify the employee in question of when they will be expected to vacate their post – this is often described as the ‘Termination Date’ within the agreement. It would also be advisable to remind the employee of the substantive terms of the agreement, e.g. when a reference will be provided and how financial compensation (if any) will be provided.


Contact Kalra Legal Group for advice from employment specialists and commercially minded legal services

The law and procedure governing the use of settlement agreements can be difficult to understand. Employers that are considering making use of these agreements must be confident that they are following good practice in both recommending their use, and negotiating their terms with employees.

At Kalra Legal Group our team of advisors are highly experienced in assisting employers in making use of settlement agreements. We understand that the needs of employers are sophisticated, requiring specialist legal services. Our team provide a professional, thorough and comprehensive service to employers seeking to making use of settlement agreements: drafting the settlement agreement; advising on their substance; negotiating their terms with employees; and facilitating an employee’s transition from the workforce with ease. If your business needs assistance in using settlement agreements, contact our team now.

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Disclaimer: The above information should not be taken as legal advice. For legal advice on employment law matters please contact a member of our team directly.

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