What is a settlement agreement?

Settlement agreement

A settlement agreement is a legally-binding document that outlines the terms and conditions under which an employment relationship comes to an end, i.e. when an employee leaves.

They provide benefits for both employers and employees, but are particularly useful for employers.

Sometimes, they are known as severance agreements.


One of the key benefits for employers in using a settlement agreement is the inclusion of confidentiality clauses. These clauses prohibit employees from discussing the details of the settlement, including the reasons for termination. This confidentiality can be crucial in safeguarding the company’s reputation and preventing any negative repercussions that might arise from workplace disputes.

Control over the terms

Settlement agreements provide employers with the opportunity to negotiate and control the terms of the agreement. Employers can tailor the settlement to meet their specific needs and concerns, ensuring that the agreement aligns with the company’s policies and goals. This proactive approach enables employers to mitigate potential risks and liabilities.

Preservation of relationships

In cases where the termination is amicable but necessitated by business needs, settlement agreements can help preserve positive relationships between the employer and departing employee. By offering a fair and mutually agreed-upon resolution, the employer demonstrates respect for the employee’s contributions.

Settlement agreements can offer employers a valuable tool for managing the termination of employment relationships while minimizing legal risks. The confidentiality and control over the terms provided by these agreements allow employers to protect their interests. As businesses navigate the complexities of employment law, settlement agreements act as a strategic and effective solution for resolving disputes with departing employees.

If you’re looking for expert advice on any aspect of employment law, contact Umberto Vietri on 01274 352056 or email umberto.vietri@awbclaw.co.uk.

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