Settlement Agreement Clauses Explained

Settlement agreements contain various clauses that define the terms of the employment ending and the settlement of claims.

Key Clauses Explained

Termination Clause

"Your employment with the Company will terminate on [date] (the 'Termination Date'). Until that date, you will continue to receive your normal salary and benefits."

This establishes when employment ends and may include garden leave provisions.

Payment Clause

"Subject to you complying with this agreement, the Company will pay you:

• Outstanding salary up to the Termination Date: £[X]
• Payment in lieu of [X] days' notice: £[X]
• Accrued holiday pay: £[X]
• Ex gratia termination payment: £[X]"

Tax Treatment

"The payments described above will be treated as follows:

• Salary, PILON, and holiday pay: Subject to PAYE deductions
• Ex gratia payment: Paid without deduction of tax up to £30,000, thereafter subject to PAYE

The Company makes no warranty regarding tax treatment. You may be liable for additional tax if HMRC disagrees with this treatment."

Waiver of Claims

General Waiver

"In consideration of the payments, you agree to waive any claims you may have against the Company, its officers, employees, and group companies arising from your employment or its termination, including but not limited to:

• Unfair dismissal
• Wrongful dismissal
• Discrimination claims
• Breach of contract
• Unlawful deduction from wages"

Specific Claims

The agreement must list specific claims being settled:

"The claims waived include claims under:

• Employment Rights Act 1996
• Equality Act 2010
• Working Time Regulations 1998
• Part-time Workers Regulations 2000 [List all relevant legislation]"

Claims Not Waived

"This agreement does not affect:

• Your accrued pension rights
• Any claim for personal injury of which you are not aware
• Claims for failure to inform and consult on collective redundancies
• Claims under the National Minimum Wage Act"

Confidentiality

Confidentiality Clause

"You agree to keep the terms of this agreement confidential and not to disclose them to any person except:

• Your immediate family
• Your legal and financial advisers
• HMRC as required
• As required by law"

Mutual Confidentiality

"The Company agrees that, except as required by law, it will keep the circumstances of your departure confidential and will not disclose the terms of this agreement."

References

Agreed Reference

"The Company agrees to provide a reference in the form attached as Schedule [X] in response to requests from prospective employers. The Company will not provide any reference that differs materially from this agreed wording."

Standard Reference Clause

"In response to reference requests, the Company will confirm:

• Dates of employment
• Job title(s) held
• Salary at termination"

Non-Derogatory Statements

Mutual Non-Disparagement

"Neither party will make any derogatory or disparaging statements about the other. This includes statements to colleagues, customers, suppliers, or on social media."

Agreed Statement

"If asked about your departure, both parties will limit their comments to: 'X left the Company to pursue other opportunities. We thank them for their contribution and wish them well.'"

Return of Property

Property Clause

"You confirm that you have returned, or will return by the Termination Date, all Company property including:

• Laptop, phone, and equipment
• Keys, passes, and cards
• Documents and files (physical and electronic)
• Confidential information"

Data Deletion

"You confirm that you have not retained any Company data on personal devices and will delete any such data immediately."

Restrictive Covenants

Existing Covenants

"You acknowledge that the restrictive covenants in your employment contract remain in full force and effect. For the avoidance of doubt, [specify key restrictions]."

Modified Covenants

"The restrictive covenants in your employment contract are modified as follows: [specify changes, e.g., reduced duration or scope]."

Independent Legal Advice

Advice Certificate

"A condition of this agreement is that you receive independent legal advice from a relevant independent adviser on the terms and effect of this agreement, particularly its effect on your ability to pursue claims before an employment tribunal.

The Company will contribute £[500] plus VAT towards your legal fees for this advice."

Adviser Statement

The adviser must sign a certificate confirming:

• They gave advice on the terms and effect
• They have insurance covering the advice
• The statutory conditions are satisfied

Warranties

Employee Warranties

"You warrant that:

• You have no claims other than those settled by this agreement
• You have disclosed all relevant circumstances
• You have not committed any breach that would justify summary dismissal"

Company Warranty

"The Company warrants that it is not aware of any circumstances that would give rise to claims against you."

Full and Final Settlement

Finality Clause

"This agreement is in full and final settlement of all claims you have or may have against the Company and its officers and employees, whether or not those claims are known at the date of this agreement."

Applicable Law

Governing Law

"This agreement shall be governed by and construed in accordance with English law. The English courts shall have exclusive jurisdiction."

What to Negotiate

Common Negotiation Points

1. Payment amount - Room for increase
2. Reference wording - Positive and helpful
3. Legal fees contribution - Higher amount
4. Confidentiality scope - Narrower is better
5. Announcement - Control the narrative
6. Restrictive covenants - Reduced scope/duration
7. Garden leave - Shortened or waived
8. Equity awards - Accelerated vesting