This is a preliminary advice note and is not a substitute for taking detailed legal advice about your situation, which may be legally complicated.

Settlement agreements are a relatively common way of ending an employment relationship. Under the terms of the agreement, the employee receives a lump sum payment and then agrees to accept the money in settlement of all claims past, present or future which the employee has or may possess against the employer or any group, company, officer or staff member.

For an employee, it is important to obtain reliable advice if such an agreement is presented to you by your employer.

The role of the legal adviser is not just to witness your signature but to provide detailed advice as to your legal position and whether you should accept the monetary offer made by the employer under the terms of the agreement, as well as to discuss other options available.

The legal adviser will also consider amendments which should be made to the wording of the draft agreement. These agreements are usually drafted very favourably towards the employer and need to be amended to redress the balance and to protect the employee’s interests.

It is not uncommon for the employer to offer a contribution towards the employee’s legal costs under the terms of the agreement.

In my experience, such contribution is negotiable, and the amount is usually required to be increased. This is primarily because the amount offered usually only provides for the signing of the agreement without any amendment. This is, of course, deliberate on the part of employers, since they do not wish for their draft agreements to be amended.

Some of the terms of draft agreements are very onerous, such as an obligation upon the employee to repay the whole of the compromise money if they breach (however minor) their obligations under the agreement. Such obligations usually include warranties that the employee has never been in breach of their employment agreement (which would include arriving late for work) or will not disclose the terms or even the existence of the settlement agreement to any third parties. It can therefore be appreciated why amendments are usually recommended.

Employees should be wary about legal advisers who do not suggest any amendments to the terms of the draft agreement and who are prepared to rely entirely upon the contribution paid by the employer.

Sometimes it is advisable for clients not to accept the monetary offer on the table.

It is in fact not uncommon for the amounts offered by employers under settlement agreements to be inadequate.

One notable example comes from a client who was offered £8,000 by an employer under a settlement agreement. The client was advised not to sign off on the agreement, and following the making of a tribunal claim, a settlement of £25,000 was agreed to.

It is also not uncommon for employees to have the benefit of legal expense insurance cover in order to bring tribunal claims. This is a common add-on to home contents insurance policies. Alternatively, in cases where there is no legal expenses cover, then it may be possible, if the claim is reasonably strong, to enter into a no-win, no-fee agreement. 

However, upon the basis that the employee is willing to accept the money on the table, then it is necessary to run through with the employee each of the paragraphs of the compromise agreement, making amendments where necessary or instructed to do so.

Compromise agreements are generally extremely onerous, and in a perfect world, we would only recommend the employee to sign after implementing reasonable changes.

Legal costs will depend on the amount of work involved and whether the employee feels that they can live with the agreement in its amended state or whether they should push to secure further amendments.