A Settlement Agreement (formerly known as a Compromise Agreement) is a contract where the employee agrees to waive his or her legal claims against the employer on agreed financial and other terms. Settlement agreements are commonly used as a means of resolving disputes between an employer and employee and/or a way of terminating the employment relationship by mutual agreement.

Settlement Agreements are often proposed by employers during a redundancy process, where an employee has filed a grievance or where there has been a misconduct issue/complaint. Whatever the reason for a settlement agreement between an employer and an employee, the point of negotiations is usually to resolve matters without the need for litigation. 

In order for an employee validly to waive his or her claims in the employment tribunal, the Settlement Agreement must fulfill certain statutory conditions. Those conditions are that:


  1. The agreement is in writing.
  2. The agreement relates to the particular proceedings that are being settled.
  3. The employee has received advice from a relevant independent advisor as to the terms and effects of the agreement and in particular its effect on his/her ability to pursue his/her rights before the employment tribunal.
  4. The adviser must be properly insured.
  5. The agreement must identify the advisor.
  6. The agreement must state that the conditions regulating settlement agreements have been satisfied.

Seeking Legal Advise with Settlement Agreement

If you are an employer, you should take legal advice to ensure that the Settlement Agreement is valid and enforceable and the above conditions are satisfied.

If you are an employee who has been offered a Settlement Agreement, your employer is likely to insist that you take legal advice before signing the Settlement Agreement, otherwise you will not validly have waived your employment tribunal claims. The requirement for legal advice is there for your protection, so that you know what your employment rights are before signing them away.

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