A settlement agreement is a vital legal document that outlines the terms of an employee’s departure. It protects both the employer and the employee, ensuring clarity over payments, references, confidentiality and future legal rights.

Essential Payment Clauses

Every settlement agreement should clearly outline the payments due to the employee on termination.  These clauses specify:

  • The total compensation payable.
  • When payment will be made: usually within 21 or 28 days after signing.
  • Any conditions that must be met before payment, such as returning company property.

Confidentiality Clauses

Confidentiality provisions are standard in most settlement agreements. They prevent both parties from discussing the circumstances leading to the agreement with third parties.

These clauses should be balanced, protecting both sides without unfairly restricting the employee. Your solicitor can ensure the wording isn’t overly broad or detrimental.

Non-Derogatory Statements

A non-derogatory statements clause ensures neither the employer nor the employee makes damaging comments about the other.
 This applies to written and verbal communications and is intended to protect professional reputations.

However, the clause must apply equally to both sides. A solicitor can review and amend the wording if necessary to ensure fairness.

Reference Clauses

Most settlement agreements include a section on employment references. This clause sets out what future employers will be told about your employment and the reason for your departure.

The agreed wording is often attached to the agreement as a schedule. If you’re unhappy with it, your solicitor can negotiate alternative wording that better reflects your contribution and protects your reputation.

We can help ensure your reference clause presents you positively by getting your settlement agreement reviewed.

Key Clauses That Matter Most

At Settlement Agreement Advice, we’re often asked which clauses in a settlement agreement are the most important. The answer depends on each person’s circumstances, but some provisions consistently require close attention.

Waiver of Future Claims

One of the most critical clauses is the waiver of claims. By signing the agreement, the employee agrees not to bring any legal claims against the employer in future. This clause must be drafted precisely and fairly. It should only cover claims relating to your employment or its termination.

You should never be asked to waive rights that aren’t connected to your employment, such as:

  • Accrued pension rights.
  • Future personal injury claims you’re not currently aware of.

At Settlement Agreements, our solicitors will review the clause to confirm that it’s limited to relevant issues and doesn’t remove unrelated legal protections.

Non-Financial Clauses

While payment terms are important, non-financial clauses can have an even greater long-term impact. These include:

  • Confidentiality – restricting what can be said about the agreement or its background.
  • Non-derogatory statements – preventing either party from speaking negatively about the other.

Such clauses affect your reputation and your ability to discuss your experience openly. We can help ensure they are fair, mutual and clearly defined.

Clause Regarding Reference Wording

Employees rarely get the chance to influence how their employment reference will be worded. A settlement agreement provides that opportunity.

You can ask your solicitor to negotiate a neutral or positive reference that accurately reflects your work.  This small change can make a big difference when applying for future roles.

Are Settlement Agreements the Same as Redundancy?

Settlement agreements are often offered in redundancy situations, but they are not the same as redundancy. Redundancy is the reason for ending employment. The settlement agreement records the terms on which the redundancy happens.

Employers can also offer settlement agreements for other reasons, such as:

    • Performance or conduct issues.
    • Grievances or disputes.
    • Mutual separation agreements.

The document itself will state the reason for termination, which may be redundancy, resignation, or mutual consent.

Is a Settlement Agreement Classed as a Dismissal?

A settlement agreement doesn’t automatically mean a dismissal. It depends on the reason for termination stated in the agreement.

Some agreements describe the departure as resignation or mutual consent rather than dismissal.  If this matters to you, raise it with your solicitor. They can negotiate the description and ensure the reference wording aligns with it.

Why Independent Legal Advice Is Essential

Settlement agreements are only legally binding if you receive independent legal advice. Our settlement agreement solicitors ensure the document is fair, that you understand every term, and that your rights are protected.

In most cases, your employer covers the cost of this advice. That means you can get professional guidance at little or no cost to you.

 

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