Settlement agreements

26th February 2024


What is a settlement agreement?

A settlement agreement is a legally binding contract made between an employer and an employee.

What are they used for?

It can be used by either party to it, to resolve a dispute or to end the working relationship including where an employer has followed a fair process and/or the employment has ended consensually. The agreement must adhere to certain statutory requirements to be legally binding. Settlement agreements are common in redundancy situations but can also be used as a mutually consensual way to resolve actual or potential claims in the workplace. Typically, the employer agrees to pay monies to the employee who in return agrees not to bring a claim, disparage the employer, and keep all matters confidential.

What are the benefits of a settlement agreement?

Settlement agreements are voluntary. An employee is under no obligation to accept a settlement agreement, but it is a mechanism by which they can bring a potentially litigious dispute to a cost-effective end, and secure a reference and compensation (usually on a tax-free basis) quickly. 

The benefit of a settlement agreement for an employer is that it prevents all risk of a current or former employee from bringing a claim in the employment tribunal. This saves on the costs and time of having to defend a claim in the employment tribunal, avoids adverse publicity and brings finality to matters. It is always worth considering offering a settlement agreement whenever an employee is leaving your employment.

I have received a settlement agreement from my employer, can you advise me on it?

Yes, you will need to take independent legal advice on the terms of the agreement in order for the agreement to be legally binding which we can provide at a cost-effective rate. The payment for our legal advice is normally met or contributed to by your employer.

I need a settlement agreement drafting, can you do this for me?

Yes, BHP Law can quickly advise, sign off and negotiate on all agreements as well as draft them for employers to suit your business needs. Our experience ensures that the final agreement that you sign, reflects the best possible settlement terms for you.


If you would like advice on a settlement agreement or need an agreement drafting, please do not hesitate to speak to a member of the Employment Law team on 01325 466 794. Alternatively, you can email


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