All you need to know about Settlement Agreements

Settlement agreements (previously known as compromise agreements) are legally binding contracts which can be used to end the employment relationship on agreed terms. They can also be used to resolve an ongoing workplace dispute for example, a dispute over holiday pay.

The main feature of a settlement agreement is that they waive an employee’s right to make a claim to an employment tribunal or court on matters that are set out in the agreement. In return they usually include some form of payment to the employee and may also include a reference.

For a settlement agreement to be legally binding the following conditions must be met:

1. The agreement must be in writing

2. The agreement must relate to a particular complaint or proceedings

3. The employee must have received advice from a relevant independent adviser, such as a solicitor, on the terms and effect of the proposed agreement

4. The independent adviser must have insurance in place in relation to the advice

5. The agreement must identify the adviser

6. The agreement must state that the conditions regulating the settlement have been met

Settlement agreements are voluntary. An employee does not have to accept the terms proposed and these can be negotiated. If, following negotiation the terms are not acceptable to the employee, the employee does not have to enter into the settlement agreement.

As discussions regarding settlement agreements are on a confidential basis, in the event that the employer and employee are unable to reach an agreement, settlement discussions cannot usually be referred to as evidence in any subsequent unfair dismissal claim.

If you need to speak to an employment solicitor about a settlement agreement please contact Claire Berry on 01480 442040 or email

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