What happens after you sign a settlement agreement

The first few weeks

1. You receive a fully signed copyKeep it, with the adviser's certificate and the agreed reference.
2. Your employment ends on the termination dateWhich may be before, on or after the signing date.
3. You return company propertyLaptop, phone, pass and documents, by the date in the agreement.
4. Final salary, notice and holiday pay are paidUsually through the normal payroll.
5. The compensation payment is paidOn the date in the agreement, commonly 14 to 28 days after signing.
6. You receive your P45And your solicitor's fee is paid by the employer.

Check the money

Compare your final payslip with the agreement. Look for the tax-free payment shown separately, notice and holiday pay taxed correctly, and pension contributions made. If the taxable part was paid after your P45 on a 0T code, you may be due a refund. See tax on settlement agreements.

Starting a new job

If your employment has ended, you are free to start work immediately, subject to any restrictive covenants. If you are on garden leave you are still employed and cannot start elsewhere without consent.

Many agreements include a warranty that you have not accepted another job, or received an offer, at the date of signing. Employers include it because they have priced the deal on the basis that you will be out of work. If you do have an offer, tell your solicitor before signing so the warranty can be amended. Signing a false warranty can entitle the employer to reclaim money.

Benefits

• Universal Credit treats the lump sum as capital. Savings over £6,000 reduce the award and savings over £16,000 normally end entitlement.
• New-style Jobseeker's Allowance is based on National Insurance contributions, not savings, but may not be paid for a period covered by pay in lieu of notice.
• Leaving by agreement is not the same as resigning, but the DWP may ask why your job ended. The agreement or a letter from your employer confirming the reason helps.

Rules change, so check your own position with the DWP or a benefits adviser.

Your continuing obligations

• Confidentiality about the terms, within the limits the law allows. See confidentiality clauses.
• No derogatory comments about the employer, including on social media and review sites.
• Restrictive covenants from your contract or the agreement.
• Co-operation with any handover or ongoing litigation, if you agreed to it.
• The tax indemnity.

Update your LinkedIn profile in line with any agreed announcement.

If the employer breaches the agreement

Common problems are late payment, a reference that departs from the agreed wording and managers making disparaging remarks. Start with a letter citing the clause and giving a short deadline. If that fails, the agreement is enforceable as a contract. Interest and legal costs may be recoverable depending on its terms.

If you breach it

The employer can sue for the loss your breach caused, and may seek an injunction for a covenant or confidentiality breach. Some agreements say the whole payment is repayable on any breach. Courts will not enforce a repayment clause that operates as a penalty out of proportion to the employer's legitimate interest, but it is better to have a clause like that narrowed before you sign.

About this guide. This page is general information, not legal advice, and reflects the law and published government plans on the date shown above. Frederick George is a legal referral service, not a law firm. For advice on your own circumstances we will introduce you to an SRA-regulated solicitor.