At Allan McDougall Solicitors, our employment law team has years of experience guiding employees in Scotland through the complexities of settlement agreements.

Whether you’ve been offered a settlement agreement following redundancy, a workplace dispute, or as part of a performance review, our team can help you understand exactly what it means. We can also explain what you’re legally entitled to, and whether the terms you’ve been presented with are fair.

All in all, from explaining your rights to negotiating better terms and signing off on legal requirements, we’re here to make sure your agreement protects your best interests.

What is a settlement agreement?

A settlement agreement is a legal document setting out the terms and conditions for settling an employment dispute. A settlement may include a financial payment and/or an employment reference.

If accepted, the affected employee usually agrees not to pursue employment-related claims against the employer in the future. These include unfair dismissal, discrimination, or breach of contract.

When are settlement agreements used?

Settlement agreements can be used for various reasons, such as:

• Redundancy or business restructuring.
• Performance or capability issues.
• Disciplinary or grievance matters.
• Long-term sickness absence.
• Mutual decisions to end employment amicably.

An employer should not engage in improper behaviour or place undue pressure on an employee when proposing a settlement agreement, and you ought to be given a reasonable timeframe to consider the terms laid out. The ACAS Code of Practice on settlement agreements recommends allowing at least 10 calendar days unless agreed otherwise by both sides.

What does a settlement agreement include?

Settlement agreements (previously known as compromise agreements) must meet specific conditions to be valid.

They must be in writing, for example, and relate to a specific complaint or set of proceedings. The affected employee must receive advice from an independent adviser, such as a solicitor, who must be identified in the agreement.

A settlement agreement will indicate an agreed termination date, and will generally indicate any payments to be made (e.g. in lieu of notice, in respect of any outstanding statutory holidays, or as compensation), the treatment of benefits, pensions, or shares, and the return of any company property. There may also be confidentiality or non-disparagement clauses included.

Because they are legal documents, settlement agreements must be read and checked carefully before being signed. You typically can’t change your mind once you’ve signed them.

What are the benefits of settlement agreements?

Settlement agreements can bring clear advantages for both employees and employers, particularly when handled fairly and with the right legal advice.
Here are some of the top benefits for employees:

Certainty

For employees, one of the main benefits of a settlement agreement is certainty. Rather than waiting months for an internal process or tribunal outcome, a settlement agreement provides a guaranteed resolution with agreed terms, payments, and peace of mind.

Closure

They also offer speed and closure for employees. This is because entering into a settlement agreement can help you avoid the stress, cost, and delay of a formal dispute. They also generally allow both parties to move on quickly and amicably.

Financial protection

Another key advantage for employees is financial protection. Depending on your circumstances, this may include an ex gratia (compensation) payment. This can be tax-free up to £30,000 (though payments in lieu of notice, holiday pay, and other contractual benefits are necessarily taxable). You may also receive a contribution from your employer towards your legal advice costs.

Practical outcomes

Settlement agreements can include positive practical outcomes, such as an agreed employment reference for future job applications. They can also lead to confidentiality around the terms of your departure. It’s also sometimes possible to negotiate variations to post-termination restrictions. This can result in a quicker return to the employment market.

All in all, by resolving matters through a settlement agreement, employees can gain both clarity and control. The result is often leaving your role on fair terms, with your rights protected and your next steps clearly defined.

Do you need independent legal advice?

Yes, it’s a legal requirement to receive independent advice before signing a settlement agreement. Without it, the agreement isn’t enforceable by law.

Getting advice also means you have access to proper guidance regarding:

• The fairness of the settlement amount.
• Any claims you may be waiving.
• Tax implications of the payment.
• The effect of confidentiality clauses.
• Any ongoing employment restrictions (such as non-compete clauses).

The cost of independent advice in this situation will usually be covered, at least in part, by your employer.

At Allan McDougall Solicitors, our employment law solicitors in Scotland routinely review settlement agreements for employees at all levels. So, no matter your position, we make sure that you understand your rights and are adequately protected before signing this document.

Confidentiality and post-termination restrictions

Settlement agreements that include confidentiality or non-disclosure clauses prevent you from discussing the terms of your settlement with anybody, subject to certain limited exceptions such as whistleblowing. They may also stipulate that you can’t discuss the circumstances of your departure or make negative statements about your employer.

However, post-termination restrictions ought to be reasonable and not restrict your ability to speak to professional advisers, family members, HMRC, or the police.

What happens if you don’t sign a settlement agreement?

You aren’t obligated to accept a settlement agreement, and your employment should continue under its existing terms if you choose not to sign. In this case, however, your employer may proceed with an internal process like redundancy or other disciplinary action.

If you think you’ve been mistreated regarding a settlement agreement, you may be able to bring a claim at an employment tribunal. Again, this requires legal advice.

How we can help

Settlement agreements are often complex documents, and everybody’s situation is different.

At Allan McDougall Solicitors, we help you understand the implications of these agreements, negotiate better terms if necessary, and ensure your legal rights are fully protected. With clear, practical advice, we often help employees resolve these kinds of issues without any further dispute.

Get in touch with Allan McDougall Solicitors

If you’ve been offered a settlement agreement by your employer, or if you want to discuss your options before signing, our experienced, compassionate employment law team can help.

Get in touch for confidential advice regarding your settlement agreement and your employment rights in Scotland.

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