A settlement agreement is an agreement between your company/you and an employee by which you agree the terms on which that employee's employment will end.

  • They are particularly appropriate if there has been a dispute with your employee which you cannot resolve or where there is a redundancy situation, a restructuring of your business or other reason for you to decide that the employee's employment should come to an end.
  • In essence, a settlement agreement will enable you to achieve a clean break with the employee so that you can be sure that they cannot make any claims in relation to their employment or its termination.
  • The agreement will generally provide that the business will make a payment to the employee which is more than the minimum to which the employee would be entitled upon termination of employment in any event.
  • There may be other terms of benefit to the business, such as confidentiality obligations and confirmation of restrictions which will apply following the termination of employment.
  • Particularly if the business considers that an employee may have grounds to make a claim, a settlement agreement is the only certain way of bringing the situation to a resolution without the management time, potential legal fees and uncertainty involved in proceedings.

We always advise our employer clients to speak with us before taking steps to terminate the employment of an employee, particularly one who has been employed for two years or more, as a few minutes spent considering the matter at that stage may save the considerable time that can be involved if employment is terminated in a way which is liable to be challenged.