Independent legal advice on a settlement agreement for a departing employee
Advice to a resigning employee on the terms of the settlement agreement offered by their employer, before signing away their claims
By Malcolm ZoppiOther
Key facts
- Deal type
- Other
- Acting for
- The employee
- Business
- Not applicable
- Sector
- Other
- Deal value
- Not applicable
- Structure
- Independent legal advice on a settlement agreement
- Timescale
- Advice given before signing
- Lead solicitor
- Malcolm Zoppi
At a glance
An employee leaving their job was offered a settlement agreement by their employer. For the agreement to be binding, the law requires the employee to receive independent legal advice on its terms and effect. We advised the employee on what they were being offered, what they were giving up and what to check before signing.
The client and the objective
The employee wanted to leave on good terms and with certainty. A settlement agreement provides that, but it also ends the employee's right to bring most claims against the employer. The employee needed to understand the trade before agreeing to it.
What we advised on
- The payments being offered and how each would be taxed.
- The claims the employee was waiving by signing.
- Confidentiality, references and any agreed announcement.
- Any restrictions continuing after employment, such as non-compete or non-solicitation covenants.
Key legal points
Why advice is a legal requirement
Statutory employment claims can only be waived by a settlement agreement if the employee has received advice from a relevant independent adviser, such as a solicitor, on its terms and effect. The adviser confirms this in the agreement. Employers usually contribute to the cost of that advice.
Tax on termination payments
Not every payment under a settlement agreement is taxed the same way. Pay for the notice period and contractual entitlements is taxed as earnings, while a genuine compensation payment may benefit from a tax-free allowance. We explained how each element would be treated.
What happens after you leave
Settlement agreements often repeat or add restrictions on working for competitors or approaching clients and colleagues. These can affect the employee's next job, so we explained their scope and whether they were likely to be enforceable.
Outcome
The employee received the advice, understood the agreement and its consequences, and was able to sign with certainty.
What this deal shows
- A settlement agreement is a trade: certainty and a payment in return for giving up claims.
- How the payment is taxed depends on how it is described, so the wording matters.
- Post-employment restrictions deserve as much attention as the money.
“A settlement agreement is final once it is signed. The time to understand what you are giving up is before, not after.”