What are the Advantages of a Settlement Agreement?

In this Guide I look at 5 advantages of an employee/senior executive entering into a settlement agreement with their employer/former employer;-

  1. If you bring an employment tribunal claim it is very unlikely that your employer/former employer will be ordered to cover your legal fees, even if you win. Legal fees in bringing a tribunal claim can be substantial and can very quickly eat into any awards made in your favour by the Tribunal.  Often an employer can be persuaded to cover some or all legal fees under a settlement agreement.
  2. A settlement agreement gives you certainty. You can never have absolute certainty (no matter what any lawyer tells you) that you will win at the Employment Tribunal or about how much you might recover.
  3. A settlement agreement allows you to get up to £30k tax free as a payment of compensation for loss of your employment – provided contractual notice is also being paid subject to usual deductions.
  4. A settlement agreement allows you to control the narrative, in terms of what is said about you and your departure to third parties. An employer is not legal required to give a reference and so an agreed reference in a settlement agreement has substantial value.  Depending on your seniority, a positively worded agreed leaving statement may be appropriate, with both parties agreeing not to say anything inconsistent with that wording to any third party.
  5. By resolving your dispute under a settlement agreement you will avoid the substantial delay in getting your claim determined by the Employment Tribunal (currently around a year) and the stress involved in bringing such a claim. This will be especially relevant where you are currently signed off with stress.


This article/blog is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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