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Settlement Agreements: A Quick Guide

Sometimes employers need to ‘remove’ employees for certain reasons and sometimes employees wish to ‘remove’ themselves from an organization where they may feel unfairly treated. Neither party usually wishes for things to go sour but when it comes to employee termination things can get messy and complicated very fast. A Settlement Agreement is a quick and clean way to skirt around what could otherwise become a problematic exercise with uncertain outcomes for both parties.

While this space is wholly inadequate to provide a comprehensive guide on Settlement Agreements, we will seek to provide a quick overview of the essentials. Only a Recognized Independent Legal Advisor will be able to provide you with all of the information required.

What is a Settlement Agreement?

Essentially, it’s a legally binding document that allows employees and employers to walk away from each other with favourable terms for both parties.

A Settlement Agreement is a formal, legally binding agreement made between an employer and an employee in which the employee agrees not to pursue particular claims that they believe they may have in relation to their employment and or its termination in return for financial compensation.

Settlement agreements are voluntary and need not be entered into or discussed if either or neither party wishes to do so. They are also not required if the dismissal has been effected fairly and following due procedure.

Required: A Recognized Independent Legal Advisor & Other Conditions

Given that settlements need to relate to particular claims, complaints or proceedings for them to be valid, they need to be drafted and specifically tailored in accordance with the facts and circumstances of each individual case. For this reason and because it’s also a legal requirement, seeking the services of a Recognized Independent Legal Advisor who is covered by professional indemnity insurance is essential.

The agreement must also be in writing and the employee must identify a relevant independent advisor from whom they have received advice, especially regarding the effect of the Settlement Agreement on the employee’s ability to pursue their rights before an employment tribunal. Failing to meet these requirements can result in the agreement being ruled invalid and leave the employer open to claims liability.

What Needs To Be Included

What will be included can vary widely and can be extensive depending on the circumstances of each individual case. However, the following are important and usually included with other terms being added as necessary.

Closure for Both Parties

The date on which employment formally ends should be included and it should be made clear that the Settlement Agreement serves as closure for both parties involved.

Money Matters

Details of all claims to be settled should be included along with figures of the sums being paid.

Return of Property

Any property belonging to the employer, the use of which the employee has been enjoying during the term of employment should be returned or there should be an agreement to return such property by a specific date.

Post Termination Restrictions & Obligations (Including Confidentiality)

This section is important and usually includes confidentiality conditions and can include other conditions depending on each individual case. Restrictions on the employee’s conduct post termination should be clearly outlined and detailed in this section.


Finally, the employer must agree to provide unbiased, non-prejudicial references to the employee so that their future employment is not in jeopardy.

Termination of Employment is a taxing process for both employers and employees and Settlement Agreements provide a means for reasonable parties to come to an agreement, ending the relationship on mutually agreeable terms. When executed correctly they can provide both employers and employees with peace of mind and ease of conscience.

Settlement Agreements: A Quick Guide