Using a settlement agreement

We often hear the term ‘settlement agreement’ – so let’s take a look at what this means, along with when and how it can be used.

A Settlement Agreement (or Compromise Agreement as they were previously known) is a legally binding arrangement between two parties; the employer and an employee. The agreement sets out the terms and conditions agreed by the employer and an employee to end an employment relationship or resolve a workplace issue.

By signing the Settlement Agreement, the employee agrees to waive his or her right to bring claims covered by the agreement to an employment tribunal or court.

There could be a wide range of scenarios for which a Settlement Agreement can be used. One of the more common scenarios is to end an employment relationship which is no longer functioning in a mutually beneficial way for both parties involved. They can also be used to resolve workplace disputes or other work-related issues, without the need to terminate the employment relationship. For example, a Settlement Agreement can be used by an employer to settle a holiday pay dispute.

One of the main benefits of using a Settlement Agreement is that through a process of negotiation it allows an employer and employee to end a workplace relationship or resolve a dispute in a legally binding, professional manner without the need for a costly tribunal.

How much is offered within a Settlement Agreement will depend upon the surrounding circumstances, the terms in the employment contract and any potential claims that the employee might be entitled to make.

A solicitor can help by calculating how much you might receive if you were to pursue a claim in a tribunal compared to the settlement agreement amounts you have been presented with.

When to ask for advice about a Settlement Agreement?

For a Settlement Agreement to be valid, you must have taken independent legal advice.

If you sign a Settlement Agreement without getting independent legal advice first, you will still be able to go to an employment tribunal, and so usually employers will pay your legal costs. A legal adviser can also ensure you know how much you are entitled to and make sure you are getting a fair deal.

If you are an employer considering using a Settlement Agreement, it is advisable to seek legal advice to ensure the agreement is valid and that you follow a fair process.