When managing redundancies, a settlement agreement can appeal to all parties. For employers, it’s a clean, claim-free legal resolution. For employees, it offers a discreet exit and agreed benefits rather than a P45 and an awkward scene. Handled correctly, it provides peace of mind for both, but missing key details can expose employers to legal or financial risk. 

Before offering or finalising any agreement, it’s vital to ensure the terms are watertight and fair, and settlement agreements are no exception. In instances of redundancies, workplace disputes, or performance-related exits, it’s suffice to say there could be some disgruntled parties involved looking for loopholes to expose. To keep things clean and compliant, here are five key checks every employer should make when considering a settlement agreement in 2025.

Clarity of Terms

Whether you’re dismissing an employee or deciding who gets the last doughnut in a pack of three, the key to any fair agreement is clear and precise terms. Employers should ensure every term is precisely defined – from payments and bonuses to notice periods, benefits, and reference wording – or risk disputes later on. A good practice is to double-check that the final document mirrors what was agreed during negotiations. For example, if the employee is being paid in lieu of notice, the agreement should specify this clearly and then confirm how the amount has been calculated. Transparency and clarity protect the employer and the employee alike, shifting the process from a heated argument to a mutually beneficial arrangement.

Scope of Claims Waived

A settlement agreement’s main appeal is, of course, the elimination of any future legal claims; however, there are certain rights for which claims cannot be legally waived, such as those for future personal injury or accrued pension rights. The agreement, therefore, should clearly list which statutory and contractual claims are being waived (such as unfair dismissal or discrimination). Overly broad waivers leave room for exploitation and could even invalidate the agreement altogether. By striking a balance between comprehensive coverage and lawful drafting, employers can ensure genuine finality and overall peace of mind.

Confidentiality and Restrictive Covenants

Most settlement agreements include confidentiality clauses to keep people from gossiping and protect business interests. It’s essential, however, to keep this element realistic and not so broad that it becomes unenforceable. In some cases, employers may also wish to specify restrictive covenants, in which case, the employee should receive further consideration (such as a payment or benefit) for agreeing to it. Examples might include a non-compete clause that prevents the employee from working for a competitor for a given period after leaving, or a non-solicitation clause that prevents the employee from poaching the company’s clients, customers, or staff. 

These restrictions must be reasonable and proportionate, meaning they must… 

cover only a fair geographic area 

last for a limited time 

relate specifically to the employee’s role and what needs protecting 

If handled properly (in other words, if you don’t go overboard with the restrictions), these clauses can help the company to stay protected after the employee leaves and ensures a fair exit procedure for all involved.

Sticking to the Process 

Even the most carefully worded agreement won’t be legally binding unless the process is followed correctly. Employers must allow the employee to seek independent legal advice from a qualified adviser and give them sufficient time to do so. Pressuring an employee to sign quickly or failing to document discussions properly could render the agreement invalid and burn the bridges you were trying to secure. Employers should also ensure these conversations remain discreet and confidential – if they’re keeping quiet, you should too. Liaisons must remain protected, meaning they cannot be used in ordinary unfair dismissal proceedings if discussions break down. A transparent, well-managed process not only safeguards the employer but also demonstrates fairness and respect toward the employee.

Tax and Other Implications

Before you breathe a sigh of relief, we need to talk tax. Ex-gratia payments are generally tax-free up to £30,000, but things such as contractual notice pay and bonuses are taxable through PAYE and will therefore have tax and National Insurance contributions deducted. Clearly outlining the tax status of each payment in the agreement ensures both parties understand what the employee will actually receive. Finally, while logistics like the return of company property, garden leave, and handover responsibilities might seem like the kind of topics that can be discussed over an eye-contact-less coffee in the break room, when specified in the agreement, they help prevent complications later on. 

You can expect every situation like this to be as unique as the individuals involved, so expert advice can be crucial when navigating settlement agreements. Taking these steps reduces the risk of disputes, protects the business and creates a clean break for everyone involved – hold the awkwardness.

To discuss your organisation’s settlement agreements or have one reviewed, speak to one of our Manchester-based employment solicitors today. 

The increasing cultural diversity of the UK workforce offers organisations significant advantages, including heightened creativity and innovation, and unapparelled engagement with diverse clients. Culturally diverse teams can enhance decision-making, attract top talent, and improve organisational reputation.

Managing multicultural teams, however, does also present its challenges. Communication barriers, differing cultural norms, and unconscious bias can create misunderstandings, conflict, and reduced team cohesion. Variations in attitudes toward hierarchy, punctuality, and teamwork can further complicate management and in extreme cases, can even result in legal claims, for example for constructive dismissal or discrimination, if not carefully managed.

At Glaisyers, we’ve noticed a steady rise in legal claims impacting our clients which involve the aforementioned issues, demonstrating the importance of getting things right in the first place.

To avoid becoming embroiled in these complications, we recommend that companies adopt inclusive and culturally sensitive strategies in all that they do. Key approaches include:

Cultural awareness training to build empathy and reduce bias.Inclusive leadership that values diverse contributions.Clear communication practices to avoid misunderstandings.Flexible HR policies that respect cultural and religious differences.Mentorship and support networks to offer help and guidance to employees.Celebrating cultural differences to foster unity and appreciation.

Effective management of a multicultural workforce transforms diversity into a source of strength, driving innovation and organisational success in an increasingly globalised economy.

If you have any concerns about managing multicultural teams or wish to ensure your policies and handbooks are up to date and suitably address these points, please do not hesitate to contact a member of our Employment Team.

Below, we answer some of the top HR and Employment Law questions that we’ve been asked by HR professionals and business owners this month:

1. Can we dismiss an employee during their probationary period?

Yes, but the dismissal must still be lawful and not discriminatory.
The probation period does not remove an employee’s employment rights and employers should still:

1. follow a fair (even if shortened) process;
2. give the correct amount of notice (whether this be contractual or statutory minimum notice); and
3. ensure that the reason for dismissal isn’t automatically unfair or discriminatory.

Top tip: Ensure that probation reviews are structured and clearly document the employer’s concerns.

2. When do we need to consult with employees about a redundancy situation?

Where an employer proposes to make 20 or more redundancies within a 90 day period at one establishment it will need to follow a collective consultation process. Generally, this will include a requirement to elect and consult with employee representatives. Even if an employer does not intend to make 20 or more redundancies in a 90 day period, it must still consult individually with affected employees.

Top tip: Start the consultation early and avoid rushing through the process to ensure that the process is meaningful and carried out at a formative stage.

3. Can we deal with sickness absence under our disciplinary policy?

A sickness absence process shouldn’t be dealt with under a disciplinary policy (although it could be appropriate where the absence has triggered a disciplinary procedure due to surpassing a certain level of absences). Calling any procedure followed for sickness absence a “disciplinary” matter would give the wrong impression and could elevate the risks of an employee bringing a claim of disability discrimination for example.

Top tip: Make sure that you have a complete employee handbook containing all relevant policies including policies on managing both short and long term sickness absence and that all employees are aware of and have access to the same.

4. Do we have to pay employees for overtime?

Generally, no, unless there is a contractual entitlement to paid overtime. However, employers must ensure that employees are paid at least the National Minimum Wage for average hours worked. They should also be mindful of working time limits and rest breaks.

Top tip: Make sure that arrangements for overtime are set out clearly in your contracts of employment.