Termination Agreements and Severance Agreements: Are They the Same as a Settlement Agreement?

If your employer has used the phrase "termination agreement" or "severance agreement" rather than "settlement agreement," you're not dealing with something unusual. These terms are widely used interchangeably in the UK, particularly by American-headquartered employers and larger multinationals where "severance package" is standard HR language, and by employers that simply prefer plainer English than the formal legal term.

What's the legal difference?

In almost every case, none. A document that ends your employment in exchange for a payment, in return for you agreeing not to pursue tribunal claims, is a settlement agreement under UK law — regardless of the heading on the page. "Termination agreement" and "severance agreement" are descriptive labels, not separate legal categories, and the same legal requirements apply:

• The agreement must be in writing and relate to specific existing or potential claims.
• You must take advice from an independent adviser (almost always a solicitor) before it's binding.
• Your adviser must be named in the agreement and hold professional indemnity insurance.

Why the terminology varies

• "Severance agreement" is common where "severance pay" or "severance package" is the employer's standard internal language, often in organisations with a US parent company or HR system.
• "Termination agreement" tends to appear where the employer wants to describe the document by what it does — ends employment — rather than by its legal name.
• "Settlement agreement" is the correct UK legal term since 2013, and the one most specialist solicitors and the tribunal system use.

Whichever term your employer uses, don't assume the document is unusual, non-standard, or different from what a specialist solicitor deals with every day. It almost certainly isn't.

What to check, whatever it's called

• The full financial picture — notice pay, accrued holiday, any bonus or commission owed, and the discretionary compensation on top, not just the headline figure.
• Restrictive covenants — non-compete, non-solicitation and confidentiality clauses. See our guide to restrictive covenant enforceability.
• Reference and announcement wording — what will be said, and to whom.
• Tax treatment — genuine compensation for loss of employment is usually tax-free up to £30,000; notice pay and holiday pay are taxed as normal.

Your employer pays for independent advice, whatever the name on the document

This is a legal requirement, not a courtesy — for a settlement agreement (under any name) to be valid, your employer must contribute to the cost of your independent legal advice. At Deen & Co, we recover our fee directly from your employer, so in almost every case there's nothing for you to pay.

Get advice today

Send us your termination agreement, severance agreement, or settlement agreement — whatever the heading says — and we'll review it the same working day and tell you, in plain English, exactly where you stand.