What is a settlement agreement?

A settlement agreement is a legally binding contract usually between your employer and you. It must be in writing and you must have independent legal advice in order to make the agreement binding and it is normal for your employer to make a contribution to your legal fees to allow you to take this advice. Normally the agreement will bring your employment to an end on an agreed date or settle claims you have already brought or may bring against your former employer if you have already left.

Settlement agreements used to be called compromise agreements. The name explains their role as they settle the claims you have or you reach a compromise with your employer. They must be in a certain format to be legally binding. Their origins can be found in various pieces of legislation. For example you can only settle claims for unfair dismissal using a settlement agreement or via an ACAS COT3. This is set down in s203 of the Employment Rights Act 1996.

In summary, the settlement agreement must be in writing and it must relate to particular proceedings or claims. You must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and in particular on your rights to bring a claim before the employment tribunal. The agreement must also state that the conditions regulating settlement agreements are met.

There are certain clauses you can expect to see in a settlement agreement and some settlement agreements are longer than others. You normally waive all your rights to bring a claim (with some limited exceptions) against your employer in exchange for a payment. This payment should always be more than your statutory entitlements otherwise it would not be in your interests to enter into the agreement. You normally agree in exchange for the money/benefits under the settlement agreement not to bring a claim. Your solicitor should take you through the agreement and provide advice to you on the clauses within the agreement and what this means for your rights. You should also expect some advice as to the fairness or otherwise of the deal you have reached although this additional service is not a requirement. It is all part of the service with us however and our solicitors will fully guide you through the process.

More FAQs on Settlement Agreements