What is a Settlement Agreement?

What is a Settlement Agreement?

A Settlement Agreement is a specific type contract between an employer and its employee (or ex-employee) to which both parties agree to terms under which the employee receives consideration which is often a negotiated financial sum in exchange for agreeing that he or she will have no further claim against the employer as a result of any breach.

What makes a Settlement Agreement legally binding?

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

• The agreement, though not necessarily the initial offer, must be in writing;
• The agreement must relate to a particular complaint or proceedings;
• The employee must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and, in particular, its effect on his or her ability to pursue an Employment Tribunal (ET) claim;
• The independent adviser must have a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from the advice;
• The agreement must identify the adviser; and
• The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.

How does a Compromise Agreement differ to a Settlement Agreement?

Previously Compromise Agreements could only be used to resolve ongoing workplace issues, as a mechanism for preventing possible future complaints to the ET whereas Settlement Agreements can be used to end an employment relationship on agreed terms.

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