A settlement agreement (formerly known as a “compromise agreement”) is a legally binding contract between an employer and employee or ex-employee, used to end the employment relationship on mutually agreed terms. At Wollens, our Employment Law team acts for both employers and employees, providing clear, practical advice to ensure the agreement is fair, compliant, and tailored to your needs.

How we support you:

  • Independent legal advice: For employees, legal advice is essential for the agreement to be valid. We explain your rights, the implications of waiving legal claims, and whether the offer is appropriate.
  • Employer guidance: For employers, we ensure the terms meet legal requirements, reduce risk, and support a smooth, conflict-free exit.
  • Review of terms: We check compensation, tax, confidentiality clauses, restrictive covenants, and reference wording for both parties.
  • Negotiation support: Whether you’re seeking improved terms or ensuring your business interests are protected, we help negotiate favourable outcomes.
  • Tailored solutions: Every situation is different. We’ll guide you through the options, from early-stage advice to drafting or reviewing the final agreement.

If you’re considering a settlement agreement—whether you’re offering or receiving one—Wollens can help you move forward with clarity and confidence.

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Get in touch with our team of Settlement Agreements experts today to discuss your requirements. You can contact us via email Email or telephone us 01803 213251

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Settlement Agreements: 10 Key Questions Answered 

Whether you’re an employer navigating a tricky exit or an employee facing a career crossroads, settlement agreements can be a powerful tool—but only if you understand them. Here are the top 10 questions I get asked, answered clearly and candidly.

What is a settlement agreement?

A legally binding contract between an employer and employee that ends a dispute or employment relationship—usually with compensation in exchange for the employee waiving legal claims.

When are they used?

Typically during redundancies, performance issues, workplace disputes, or when both sides want a clean break. They’re common in negotiated exits.

Do I have to accept one?

No. Employees are under no obligation to sign. It’s a voluntary agreement, and nobody should be pressured to sign. Legal advice is essential before signing.

What’s in it for the employee?

Usually a financial package—often tax-free up to £30,000—plus a reference, confidentiality terms, and usually the employer covers the employee’s legal costs.

What’s in it for the employer?

Certainty. Once signed, the employee can’t bring claims like unfair dismissal or discrimination. It’s a clean slate and typically contains clauses protecting the employer’s reputation.

Can I negotiate the terms?

Absolutely. Employees can ask to make changes to the terms including the settlement amount, reference wording and even the termination date. Employers will the decide whether to accept or reject any amendments.

Is legal advice mandatory?

Yes—for employees. The agreement isn’t valid unless the employee gets independent legal advice. Employers usually cover the employee’s legal cost.

What are the risks of not using one?

For employers: potential tribunal claims, reputational damage, and legal costs.

For employees: missing out on compensation or protection.

Can it include non-financial terms?

Yes. Confidentiality clauses, non-disparagement agreements and restrictions on future employment (like non-compete agreements) are common.

What happens after signing?

The agreement becomes binding, the employee receives the agreed payment and grievance or disciplinary processes or employment claims are withdrawn.

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