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Employment Settlement Agreements

A Settlement Agreement is a legally binding contract made between an employer and employee, either towards the end or just after employment has terminated. They can also be used to resolve an ongoing workplace dispute, for example, a dispute over redundancy pay.


Settlement Agreements under the Employment Rights Act are useful documents for both employers and employees as they make it possible for employment disputes to come to an end peacefully. There is usually something in the agreement for everyone.


Typically, when employment comes to and end, the employee will receive a sum of money to tide them over while they find a new job (notice money, holiday pay and perhaps a tax free ex gratia payment) and a reference. Meanwhile the employer will, through the settlement agreement, ensure that it does not have to face any claims from the employee and that the employee will behave properly after the employment is at an end regarding company clients and other company property.


What will the ESA document look like?

Agreements vary from the very simple to the fairly complex.

Essentially the agreements deal with:

  • Identity
  • What rights are being compromised (and which are not)
  • Payments to be made and tax on them
  • The return or retention of company property
  • Obligations after employment ends
  • Notices to staff
  • References

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