What is a Settlement Agreement?

A Settlement Agreement, previously known as a Compromise Agreement, is a contract between you and your employer used to resolve employment law disputes.

A Settlement Agreement brings the relationship between employer and employee to a formal end. Recording in detail any settlement you and your employer have reached.

When you sign a Settlement Agreement, you agree to waive all your claims against your employer. Your employer will usually agree to terms such as paying you a sum of money or agreeing to give you a good reference.

By signing a Settlement Agreement you waive your right to bring legal action against your former employer, whether that is actions in an Employment Tribunal or any other civil proceedings in exchange for financial pay-out.  This pay-out will often be broken down into several payments designed to cover your statutory entitlement and then an addition termination payment as compensation for your loss of employment.  Therefore it is important you are completely happy with the terms of the agreement before you agree to it, because once it is agreed you will not be able to go back and try and recover more.

In order for a settlement agreement to be legally binding it will need to be signed off by someone who is Legal qualified and able to give you sufficient advise on what rights you have and what you will be giving up in order to sign the agreement.  Most employers will agree to cover either all of this cost or a large proportion to ensure you are not left out of pocket by the experience.

Is a Settlement Agreement legally binding?

A Settlement Agreement is legally binding subject to if all of the following criteria are met

  • It must be in writing
  • Related to a particular complaint or dispute
  • The employee involved must have received independent legal advice before entering into a settlement agreement. The legal adviser must be identified within the agreement, and must also hold professional indemnity insurance and have the necessary legal qualification to be able to sign the agreement off.
  • It must be stated within the agreement that all conditions have been met

What happens if a Settlement Agreement is breached?

Due to their legally binding nature of a Settlement Agreement, if your employers was to refuse or fail to honour the terms of the agreements, you would be able to start a claim for breach of contract.

Our Employment team can provide advice on a Settlement Agreement breach and the options you have for enforcing it’s terms or taking your case to an Employment Tribunal to reinstate your original claim.

What claims can be settled by a Settlement Agreement?

  • Claims for unfair dismissal
  • Claims for wrongful dismissal
  • Redundancies
  • Whistleblowing
  • Discrimination
  • Victimisation or harassment
  • Equal pay

Do I need a solicitor for a Settlement Agreement?

In signing a Settlement Agreement you waive your right to bring an employment claim, therefore this must be signed off by a solicitor or someone with the required legal qualification in order for it to be recognised in law.

An employment solicitor will be able to advise you on the merits of your claim and the terms of the settlement agreement put forward to you by your employer. Solicitors specialised in Employment Law will also be able to identify any discrimination against you, or obligations not being followed by your employer which you may not be aware of.

Settlement Agreements cover aspects such as the amount you are paid and when this is due, whether you will receive a reference from your employer, whether you are to keep to an agreement of confidentiality, and whether your employer is to pay your legal expenses. Due to this long list of details to be involved and the legally binding nature of a Settlement Agreement, it is essential that you seek legal advice as soon as possible.

Why do employers use Settlement Agreements?

A Settlement Agreement is offered by employers when they wish to terminate a contract on terms which have been mutually agreed to by you. This is in order to make a clean break, providing no opportunity for you to take them to court or a tribunal for more money.

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