Settlement agreements: what are they and how can you get the best deal?

Woman sitting at office desk looks worried as if she is bullied


If you’re facing discrimination at work, but you don’t want to take your employer to an employment tribunal, why not offer your boss a settlement agreement?

If an employer treats you unfairly because you’re pregnant or you’ve recently had a baby, you may be being discriminated against. Pregnancy and maternity discrimination is against the law and you could take your employer to an employment tribunal.

However, this can be a costly, stressful, time-consuming process. So, in some cases, to avoid that, you could opt for a swift, as-amicable-as-possible exit. And here’s where settlement agreements come in.

What is a settlement agreement?

In a nutshell, a settlement agreement is a formal agreement between an employer and an employee. It is a written document that deals with the settlement of claims that an employee may have arising out of her or his employment or its termination. In practice, this usually means that an employee accepts a sum of money in return for agreeing not to bring certain legal claims against the employer.

When are they used?

Typically, settlement agreements are used in situations where both parties (the employer and the employee) want to reach an amicable arrangement to part company. For example, in a redundancy situation, an employer might offer extra money for an employee to take redundancy and leave quickly, rather than going down a redundancy consultation.

“The same is true with disciplinary situations,” says Tom Moyes, an employment partner at Blacks Solicitors, who specialises in settlement agreements. “If an employer thinks an employee is not performing well or has done something wrong, rather than go down the performance management, the employee may agree to leave in exchange for a settlement payment.

What about discrimination cases?

When it comes to discrimination, your employer may be prepared to give you some money, and sign a settlement agreement, in return for you leaving work and not bringing a claim. This can save them time, money and potentially bad publicity but it can also ensure you have some money and a swift exit.

First steps

“Before you approach your employer, you need to know how likely your discrimination claim is to succeed. An employment solicitor will be able to assess your prospects of success, and much your claim is worth, and this will give you some leverage in your negotiations,” says Moyes.

The higher the prospects of success and likely costs, the more likely your employer will want to settle the claims with a payment and a settlement agreement.

Legal costs

It’s a legal requirement to get independent advice before you sign a settlement agreement, which is why employers will usually pay for employees to see a solicitor.

“It’s a good idea to get legal advice as early as possible,” says Moyes: “A qualified employment solicitor will draw up a settlement proposal for you, guide you through the process and help you negotiate as good a deal as possible.”

Anything else?

A settlement agreement is a final sign-off so before you sign, make sure everything is covered. Agreements will typically include a confidentially clause, which means you won’t be able to publicly discuss the terms. So make sure you are happy with the deal and are certain you don’t wish to bring a claim instead. And remember that while it’s important to have a fair financial settlement, a settlement agreement can also include any other entitlements, such as holiday pay. It can also include an agreed reference from your employer – which will help you find a new job.

*Joanne O’Connell is Editor of

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