Settlement Agreements

15 October 2020

By John Arnold, Partner and Head of Commercial Law

The coronavirus pandemic has presented a series of challenges for employers and employees alike. With the Government’s furlough scheme coming to an end many employers will be seeking to cut costs and to cut their monthly expenditure.

Many employers will be in a situation where there is a ‘cessation or diminution of the requirement for employees to do work of a particular kind in the place where the employee was employed’,
therefore there will be a genuine case for redundancy.

In circumstances where termination of employment is being considered, employers often ask employees to sign a Settlement Agreement (previously called a
compromise agreement). These are intended to give the employer a “clean break” from any future claims by the employee other than those provided for
in the settlement agreement itself. Agreements will contain the financial terms and may include claims for any as yet unknown personal injuries brought
about by the employment.

For an employee who qualifies for a redundancy payment, a Settlement Agreement will generally include the payment of any contractual notice that the employee
is entitled to as well as a redundancy payment. These will be based on the employer’s terms or at least the statutory redundancy entitlement for the
employee concerned.

An employer is entitled to bring an employee’s service to an end simply by paying their contractual and statutory entitlements. There is no legal requirement
for a Settlement Agreement to be in place. A Settlement Agreement is of value to an employer as it sets out a range of legally binding assurances,
confirmations and agreements given by the employee.

It is a requirement of any Settlement Agreement that an employee receives independent legal advice on the agreement itself. This ensures that the employee
has been treated fairly in the eyes of the law, which enables the employer to rely upon the terms of the Settlement Agreement in the future. It is
also usually the case that the employer will agree to pay for this advice.

By signing a Settlement Agreement, the employee is providing valuable benefits to the employer. As such, both parties will need to recognise that an independent
solicitor will not advise an employee to sign an agreement unless it provide sufficient additional benefits, over and above their strict statutory

At Cullimore Dutton, we have a great track record of advising both employers and employees on Settlement Agreements. Partner and Head of Commercial Law,
John Arnold is a member of the Employment Lawyers Association and has over 20 years experience of providing advice on such matters.

For more information or to arrange free half hour consultation with a member of our Commercial Law team, please contact us on 01244 356 789 or email

Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.