Termination date and payments
The agreement states when employment ends and what will be paid: salary to the termination date, notice pay, holiday pay, any bonus and the compensation payment, each with its tax treatment and a payment date. Check each figure against your contract and payslips. Check that benefits and pension contributions are dealt with.
The waiver of claims
This is what the employer is paying for. You agree that the payments are in full and final settlement of the claims listed. There are usually two parts:
- Particular claims, which are the ones you have raised or could realistically bring, such as unfair dismissal or discrimination.
- A schedule of every other claim under employment legislation and at common law.
A general waiver of "all claims" will not release statutory claims on its own, which is why the list is long.
What you cannot waive, or will not be asked to
- Your accrued pension rights.
- Claims to enforce the settlement agreement itself.
- Personal injury claims you are not aware of at the date of signing. Known injuries, including stress-related illness, are usually waived, so tell your adviser about any health problems.
- The right to make a protected whistleblowing disclosure, report a crime or co-operate with a regulator.
- Claims that cannot legally be settled this way, such as statutory maternity, paternity or adoption pay already due.
Warranties
Warranties are statements you confirm are true. Typical ones are that:
- you have no other claims and know of no facts that could give rise to one;
- you have not done anything that would have justified summary dismissal;
- you have not accepted, or been offered, another job;
- you have returned all company property and not kept confidential information;
- you have taken independent legal advice.
Read each one as a question you are answering under oath. If any is untrue, say so before signing so it can be amended. The employer may be able to recover money if a warranty turns out to be false.
Tax indemnity
You agree to pay any further income tax and employee National Insurance that HMRC assesses on the payments. Ask for three limits: no liability for interest or penalties caused by the employer, prompt notice of any HMRC demand, and a chance to dispute it before the employer pays.
Repayment and breach
Some drafts say that if you breach any term, or bring a claim, you must repay everything. A proportionate clause, limited to material breaches or to bringing the claims you waived, is common. A clause demanding full repayment for any trivial breach is open to challenge as a penalty and is worth narrowing.
Confidentiality and non-derogatory comments
You agree to keep the terms confidential and not to disparage the employer. Ask for the non-derogatory promise to be mutual, and for the employer to instruct named managers. The law limits what confidentiality can cover. See confidentiality clauses and NDAs.
Reference and announcement
An agreed reference is usually attached as a schedule. Senior exits often add agreed wording for internal and external announcements.
Post-termination restrictions
The agreement normally confirms that the restrictive covenants in your contract continue, and may add new ones.
Company property, directorships and co-operation
You return equipment and documents and delete company data from personal devices. Directors resign their offices, usually by a letter attached to the agreement. You may be asked to help with handover or with litigation involving the company. Ask for reasonable expenses and a time limit.
Legal advice and the adviser's certificate
The agreement names your adviser, records that you have been advised and that the statutory conditions are met, and sets the legal fee contribution. The adviser signs a certificate attached at the back. See the legal advice requirement.
"Subject to contract" and "entire agreement"
Until signed by all parties, the draft is marked "without prejudice and subject to contract" and binds no one. Once signed, an entire agreement clause says the document replaces anything said or promised earlier. If you were promised something in a meeting, such as a bonus or a later leaving date, make sure it is written into the agreement.
Frequently asked questions
Why does my agreement list claims that have nothing to do with me?
The law requires the agreement to identify particular claims, so employers list every claim an employee could have. It does not suggest you have them.
Can a settlement agreement waive future claims?
Courts have accepted that it can, if the wording is plain and unmistakable. Most agreements carve out personal injury claims you are not yet aware of and accrued pension rights.
What is a tax indemnity?
A promise that if HMRC later demands more tax on the payments, you will pay it. It is standard, but it can be limited so you are not liable for the employer's penalties or delay.
Can I ask for clauses to be changed?
Yes. The draft is the employer's opening position, and wording changes are a normal part of the process.
Sources
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.