Settlement Agreement Guidance

What should be included in a settlement agreement?


There are a number of clauses that are ever present in settlement agreements. Of course, important for the individuals signing the settlement agreement, that needs to be clauses making a provision for settlement payments to be made to them upon their termination. These clauses will provide a deadline after which the termination payment will be made which is typically 21 or 28 days, following receipt of a signed and certified copy of the agreement.


Settlement agreements also commonly include confidentiality provisions that restrict the individual and the company from discussing the circumstances leading up to the settlement agreement with any third party. 


It is important to take advice on the terms of those clauses to ensure that they are not worded to the individual’s detriment. Non-derogatory statements undertakings are often also present in settlement agreements. These clauses provide that the individual and the company should not make derogatory statements about one another either verbally or in writing.


As well as provisions related to the payments to be made as benefits to be received by the individual under the agreement, there is also typically wording for a reference to be provided to prospective employers. All of the terms of a settlement agreement may be negotiated by the individual’s adviser so in the event that you are unhappy with any of the terms of the agreement and would like your adviser to negotiate preferred terms then you must make this clear at the time you are taking advice.

Is a settlement agreement the same as redundancy?


Settlement agreements are often offered to employees who are compulsorily or voluntarily made redundant. This does not mean however that they are the same thing, settlement agreements are not the same as redundancy.


A settlement agreement may be offered in a variety of different situations including redundancy but also including performance or misconduct disputes as well as more general grievances brought by the individual. The most common reason for employers offering individuals settlement agreements is redundancy however, this is not the only reason why individuals may be offered a deal on their exit.


The reason for termination will be described within the settlement agreement and this could include redundancy but conversely, it could also include other reasons for termination, for example, resignation or mutual consent.

Is a settlement agreement classed as a dismissal?


A settlement agreement does not automatically have to be classed as a termination of employment or dismissal. The reason for termination is typically described within the settlement agreement in the main body as well as sometimes within the wording for the reference to be provided to prospective employers. 


In some cases, a settlement agreement may describe the reason for termination as resignation or mutual consent. In those cases, there has not been a dismissal by the employer but rather a resignation on the part of the employee.


If this is a particular concern for you then you should speak to your legal adviser when taking advice on the terms of the settlement agreement to ensure that the wording does not prejudice your position at all. It may be the case that the legal adviser can negotiate a different type of wording to describe the reason for termination and also different wording to be included in the reference to be provided to prospective employers upon request.