Settlement Agreement

A Settlement Agreement (formerly known as a Compromise Agreement) is a legally binding contract between the employee and employer whereby the employment relationship can be ended on agreed terms.

All Employees  are protected by employment law rights conferred on them by statute. The only way that they can waive those rights is by signing a Settlement Agreement.

For a Settlement Agreement to be effective strict conditions have to be met, including the Employee receiving legal advice on the terms of the proposed Settlement Agreement by a qualified legal adviser.

Any arrangement between employee and employer that purports to agree a termination of the employment relationship will not be effective unless it is in the form of a Settlement Agreement, so it is essential for both employee and employer to take legal advice beforehand.

Once a Settlement Agreement has been entered into, an employee will not be able to make a claim to a court or employment tribunal on the matters that are covered in the agreement. Accordingly, Settlement Agreements are particularly useful where an employee may potentially challenge the outcome of a redundancy, disciplinary or grievance

The cost of the advice required is usually picked up by the Employer. From the employer’s point of view, that cost is, in effect, a premium for the assurance of knowing the Employee cannot make any future claims.

From the employee’s point of view, the Settlement Agreement should include terms (usually financial) which would make it worthwhile for them to waive the rights they may have to bring an employment claim.

If you are an Employee considering entering into a Settlement Agreement we can provide you with independent legal advice on the proposed terms.

If you are an Employer, we can advise on and draft Settlement Agreements on your behalf, but would recommend that you negotiate the principal terms first.