Settlement agreement checklist: what to look out for before you sign

Check that your notice pay (statutory or contractual, whichever is greater), accrued holiday pay and any redundancy payment are all correctly calculated and included.

The ex gratia element should reflect the value of the claims you are giving up. If you have strong potential claims, the figure may need to be higher to compensate adequately.

Any unpaid salary, overtime, commission, bonus or other contractual benefits owed up to the termination date should be identified and included.

The agreement should specify when each element of the payment will be made. Check this is reasonable and that there are no unusual conditions attached to payment.

Payments that form part of your general earnings, such as your salary, notice pay, holiday pay and bonus payments for example, are taxable in full. Certain qualifying compensation payments for loss of employment — including redundancy pay and ex gratia payments — may be paid tax-free up to £30,000 per employment.

How the payment is described in the agreement affects how it is taxed. Incorrect drafting can result in an unexpected tax liability.

The agreement should list the specific claims being waived. Your adviser should explain what this means and whether you have any live or potential claims that would be affected.

Certain claims cannot be waived regardless of what the agreement says — including accrued pension rights and personal injury claims not yet arisen. Your adviser should identify these.

Not all agreements include an agreed reference. If yours does, review the wording carefully — it should be accurate and acceptable to you.

The agreement should identify who within the organisation will respond to reference requests, and confirm that only the agreed wording will be used.

Reference wording is often negotiable. If the proposed wording is vague or lukewarm, it may be worth asking for something more specific or positive.

Most agreements include a confidentiality clause preventing disclosure of the settlement terms. Check exactly what you are and are not permitted to say, and to whom.

Check that the clause does not purport to prevent you from making a protected disclosure (whistleblowing), reporting a crime, or complying with a legal obligation, for example.

Most confidentiality clauses permit disclosure to your immediate family and professional advisers. Check this is expressly included in the wording.

Some agreements go further and prohibit you from making negative comments about your employer. Check the scope of any such clause and whether it is mutual.

The agreement may confirm existing restrictions from your employment contract or introduce new ones. Common restrictions include non-competition, non-solicitation of clients and non-poaching of employees.

Post-termination restrictions are only enforceable to the extent they go no further than reasonably necessary to protect a legitimate business interest. Overly broad restrictions may be unenforceable — but they can still cause practical difficulties with a new employer.

Check the duration of each restriction. The longer the period or broader the restriction, the more scrutiny it deserves.

Check your last day of employment is accurately recorded as this may affect your entitlements, including any redundancy payment calculation.

Check whether you will work your notice, be placed on garden leave, or receive a payment in lieu of notice.

Check how benefits such as private medical insurance, life assurance, a company car or share options are dealt with on termination. Some may require separate arrangements.

The agreement should confirm the arrangements regarding your pension up to your termination date. Your accrued pension rights cannot be waived.

The agreement will typically require you to return company property — laptop, phone, access cards and documents — by a specified date. Check this is reasonable.

If the agreement includes an agreed announcement about your departure — whether internal or external — review it carefully. The framing matters, particularly for your professional reputation.

If you intend to update your LinkedIn profile or make any public statement about your departure, check whether the confidentiality or non-disparagement clauses affect what you can say.

The agreement should name your relevant independent adviser. Check this is correct before you sign.

Your adviser should sign an adviser's certificate confirming they have advised you on the terms and effect of the agreement. Without this, the agreement cannot validly waive your statutory rights.

Whilst not a legal requirement, it is standard practice for employers to include a contribution to your legal fees in the agreement. Check the amount offered and whether it is sufficient to cover the advice you need.