Employment Settlement Agreement: Meaning & Key Terms
An employment settlement agreement is a written deal that ends a workplace dispute or an employment relationship, usually with a payment in exchange for a release of claims. It cannot take away minimum entitlements under the Fair Work Act 2009 (Cth), the National Employment Standards or an award, so each side should get advice before signing.
- A settlement deed records the terms on which a job ends or a dispute is resolved, including payment, a release of claims and any agreed reference.
- Accrued entitlements such as unused annual leave and redundancy pay owed under the NES must still be paid. They cannot be traded away.
- The 21-day deadline to lodge an unfair dismissal application with the Fair Work Commission keeps running while you negotiate.
- Read every clause, get independent advice and never sign under pressure or a short deadline you did not agree to.
How an employment settlement agreement works
- One side raises a dispute, such as a claimed unfair dismissal, an underpayment or a bullying complaint, and both sides agree to talk about a resolution.
- The parties negotiate a payment, a departure date, a reference and what each side will say about the exit, often through a lawyer or union.
- The terms are written into a deed or agreement that usually includes a release, where the employee agrees not to pursue the settled claims.
- Confidentiality and non-disparagement clauses are common, but they cannot stop a worker from speaking to a regulator such as the Fair Work Ombudsman or SafeWork NSW.
- The employer pays what is owed, including accrued leave and any NES redundancy pay, on top of any extra settlement amount.
- Both sides keep a signed copy, and the employer keeps payment and payroll records for 7 years.
Examples of an employment settlement agreement
- A site supervisor is dismissed and lodges, or considers lodging, an unfair dismissal claim. The parties settle for an agreed payment before a conciliation conference.
- A warehouse worker disputes unpaid overtime, and the employer pays the shortfall plus an agreed amount to close the matter.
- A cleaner on a long contract has the role cut, and the employer agrees an early exit date with pay in lieu of notice.
- An office employee raises a workplace complaint, and both sides agree a mutual exit with a neutral reference.
- A manager leaves after a restructure, and the agreement covers a payment on top of statutory redundancy pay.
Employment settlement agreement: key rules and numbers
| Item | What applies |
|---|---|
| Unfair dismissal deadline | Apply to the Fair Work Commission within 21 days of the dismissal taking effect. |
| Minimum employment period | 6 months, or 12 months for a small business employer with fewer than 15 employees. |
| Compensation cap | $95,050 for claims lodged on or after 1 July 2026. |
| High income threshold | $190,100 for dismissals on or after 1 July 2026. |
| Redundancy pay | Set by the NES for employers with 15 or more employees. It is not required for under 1 year of service or for small business employers. |
| Tax-free redundancy part | $13,598 plus $6,801 for each completed year of service in 2026-27, for a genuine redundancy payment. |
Related terms
- Severance pay: a payment made when a job ends, which may include redundancy pay. See severance pay.
- Notice period: the time, or pay in lieu, an employer must give before termination. See notice period.
- Unfair dismissal: a dismissal that is harsh, unjust or unreasonable. See unfair dismissal.
- Retrenchment: the end of a job because the employer no longer needs it. See retrenchment.
Employment settlement agreement FAQ
Is an employment settlement agreement legally binding?
Yes, once both sides sign a properly drafted agreement, it is generally enforceable. It cannot override NES minimums or award entitlements, and a clause that tries to is likely to be ineffective. Get legal advice before signing, because you may give up the right to bring the settled claims.
Can I still lodge an unfair dismissal claim after signing?
Usually not for the matters the release covers. Check what the release includes. The 21-day deadline keeps running while you negotiate, so do not let talks run past it without advice. The Fair Work Commission can explain the process, and a lawyer or union can review the terms.
Is a settlement payment taxed?
It depends on what the payment is for. A genuine redundancy payment has a tax-free part, while other termination payments can be taxed differently. Ask the ATO or a tax professional before you agree to how the payment is described, and never disguise its real nature.
This is general information, not legal, tax or financial advice, so check the Fair Work Ombudsman, the ATO or an employment lawyer for your situation. Use our redundancy calculator to check entitlements, or talk to TQN Personnel about workforce support for your business.