Frequent Clauses in Settlement Agreements

It is helpful for employers and employees alike to familiarise themselves with the most frequent clauses in settlement agreements. This article aims to clarify and explain the clauses most frequently found in settlement agreements to ensure that both employers and employees alike are on an equal footing. This will also save for any complications which may occur down the line.

Employee Benefits

Employees often receive benefits such as healthcare and life assurance from their employers. There is the option for these benefits to continue even if the employment has been terminated, so it must be explicitly stated in the settlement agreement whether the employee will receive these benefits after employment, and if so, for how long.


Pensions are an important element of employment and an employee’s life. A settlement agreement must therefore elucidate both the employer’s pension contributions and the employee’s entitlement to, or transfer of, their pension.

Company Property

Employees may enjoy the benefit of company property such as a company car, laptop, tablet or mobile phone. Upon termination of employment, it may be necessary for an employee to return, transfer or even purchase the company property by a certain date. These details must all be included in a settlement agreement.

Legal Fees

For a valid settlement agreement, an employee must obtain independent legal advice. It is commonplace for the employer to cover all or some of the legal fees relating to the settlement agreement as it is in their interests. The proportion of the legal fees which the employer will cover must be outlined in the settlement agreement.

Withdrawal of Proceedings

Ordinarily, once a settlement agreement has been signed, an employee will need to withdraw any legal proceedings that may have been brought against their employer. It is commonplace for the settlement payment to reflect the withdrawal of any legal claims. Employee Promises or “Warranties”

An employee will often have to verify certain facts before a settlement agreement can be entered into. For example it is common for an employee to confirm that at that point they do not have another job and that they have not committed a breach of contract. These two points are important at the settlement stage as the former may have an effect on the amount of compensation received by the employee, and the latter may mean that the employer can terminate the employment meaning that no settlement agreement is needed.

Retirement as Director/Loss of Office/Trusteeships

Directorship and offices do not cease at the same time as employment termination. It is normal process for a Director to be asked to resign on termination of the directorship. Settlement agreements address this issue by outlining any compensation that has been agreed between the employee and employer.

Restricted Notice or “Garden Leave”

An employer may wish to impose certain restrictions on an employee such as their access to the employer’s premises and IT systems and contact with former colleagues. The extent of an employee’s garden leave must be outlined in the settlement agreement.

Restrictive Covenants

Employers are wary of the risk that former employees may use confidential information to directly compete with, or even steal, former colleagues, contacts or clients. Employees should check their contracts of employment to see if any restrictive covenants will apply to them. One benefit of creating a settlement agreement is that it provides an opportunity for an employer to re-impose, or even amend, these covenants which may consequently need to be met with additional compensation. Legal advice must be sought to determine the reasonableness of the restrictive covenants and the compensation offered. Additionally, these covenants may no longer be enforceable if the contract has been breached and again, it is highly recommended that an employer should speak to one of our lawyers regarding this matter.

Clarity and understanding are key when forming settlement agreements for both the employee and employer as they reduce the chance that difficulties appear down the line

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