Disagreements at work happen. Sometimes it’s redundancy, sometimes it’s performance issues, sometimes it’s just that the working relationship has broken down. When it’s clear that moving on is the best option, one way to end things is through a settlement agreement. If you’re in that position, it’s worth knowing how settlement agreements in Scotland work and what they actually mean.
What Exactly Is a Settlement Agreement?
It’s a contract between an employer and an employee. The idea’s simple: the employee agrees not to bring certain legal claims, and in return the employer offers compensation or some other benefit.
Most of the time, these agreements are used when employment is coming to an end. The employer gets certainty that there’ll be no tribunal claim. The employee gets money in their pocket, maybe an agreed reference, and closure.
Why Employers Use Them
Employers like settlement agreements because they draw a line under things. Tribunals are expensive and stressful, not to mention public. A signed agreement is quicker, cheaper, and private.
They also like the confidentiality clauses. No one wants sensitive details or payout figures being shared around the industry.
Why Employees Say Yes
For employees, the main draw is usually the payment. Often it’s more than statutory redundancy. On top of that, they might get a reference, continued benefits for a short while, or even a clean record if warnings are wiped out.
But it’s not all one-way traffic. By signing, the employee gives up the right to pursue certain claims later. That’s why independent legal advice is required before signing.
What Makes It Legally Binding?
Scottish law sets a few ground rules. To be valid, the agreement must be in writing. It has to deal with specific complaints. The employee has to take advice from an independent adviser. In most cases this is a solicitor, but it could also be a certified trade union official or an accredited advice centre worker. Whoever it is, they must be insured and named in the document.
If those boxes aren’t ticked, the agreement won’t stand up. These safeguards are in place so employees know exactly what they’re signing away.
Typical Clauses You’ll See
Every case is different, but most agreements cover similar ground. Payment terms, notice periods, and sometimes tax treatment. In the UK, the first £30,000 of a genuine termination payment is usually free from income tax, although National Insurance contributions may apply depending on the type of payment. Anything above £30,000 is normally taxable.
Confidentiality clauses are almost always there. There’s usually a list of the claims the employee is waiving. Property returns are common too, such as laptops, phones, and documents. And sometimes there’s agreed wording for a reference, which can make a big difference when looking for a new role.
The Upside for Both Sides
Done well, settlement agreements in Scotland help everyone move on. The employer avoids the cost and risk of a tribunal. The employee gets compensation and certainty about their future. Both sides avoid months of uncertainty and stress, which can weigh heavily on morale.
Things to Watch Out For
Pressure can creep in. Some employees feel pushed to sign quickly, but employers are expected to give reasonable time for consideration. ACAS guidance suggests a minimum of 10 calendar days. It’s not a hard legal rule, but it’s considered best practice.
Confidentiality terms can also be heavy-handed. They need to be fair, not gagging clauses that overreach. This is exactly where proper legal advice makes a difference.
If You’re Given One
First tip: don’t panic. Read it, take your time, then get advice from a solicitor or another qualified adviser. They’ll explain what you’re giving up, whether the deal is fair, and if anything should be renegotiated.
If you’re an employer considering settlement agreements in Scotland, get advice before putting anything in writing. A poorly drafted document can cause more problems than it solves. A carefully drafted one, on the other hand, provides peace of mind.
Final Thoughts
Settlement agreements are a familiar feature of Scottish employment law. They’re not just paperwork. They’re contracts that close the door on legal claims and let both sides move on.
If you’re offered one, remember: signing is final. Independent advice isn’t just a legal box to tick, it’s your safeguard. With the right guidance, you’ll know whether the deal’s fair and whether it’s the right step for you. For employers, the same rule applies: take advice early so the agreement protects your interests and achieves what you need it to.