Settlement Agreement Briefing Note
A plain-English briefing for employees and managers on what a settlement agreement is, what it covers, and how the independent advice requirement works.
A plain-English briefing for employees and managers on what a settlement agreement is, what it covers, and how the independent advice requirement works.
When to use it
Whenever a settlement agreement is offered, issued alongside the draft agreement itself.
Explaining a settlement agreement so people understand what they are signing
A settlement agreement is a legally binding contract in which an employee waives specified claims, usually in return for a payment. For most employees it is the first they have seen, and the language is unfamiliar at exactly the moment their concentration is lowest. This briefing note explains it in plain English alongside the draft agreement.
What the note covers
Why the agreement is being offered, what it means to waive claims, which payments are being made and how each is treated for tax, the requirement for independent legal advice, the contribution the employer will make towards that advice, and the timescale for considering it. It also covers confidentiality and references, which are the two clauses people most often misunderstand.
Time to consider
Acas guidance suggests a minimum of ten calendar days to consider a proposed settlement agreement and take advice. Pressuring someone to sign quickly is both poor practice and, in the context of a protected conversation, capable of removing the protection you were relying on.
Independent advice is a legal requirement
The agreement is only binding if the employee has taken advice from a relevant independent adviser who is identified in the agreement and insured. Budget a realistic contribution — an unrealistically low figure delays completion more often than it saves money.
Where it sits in the process
Settlement agreements are used in voluntary schemes, in negotiated exits and where enhanced terms are paid. Model the cost in the Redundancy Cost Model and, where a voluntary scheme is running, issue it with the Voluntary Redundancy Scheme and Application Form.
This note is written to be given to employees. It is a plain-English explanation, not legal advice, and both sides should rely on their own advisers. Our guides cover how settlement fits into a wider, well-run process.
