Compromise & Settlement Agreements

  • Settlement agreements are legally binding contracts that waive an individual's rights to make a claim covered by the agreement to an employment tribunal or court.
  • The agreement must be in writing.
  • They usually include some form of payment to the employee and may often include a reference.
  • They are voluntary.
  • They can be offered at any stage of an employment relationship.

Settlement agreements are legally binding contracts which can be used to end an employment relationship on agreed terms. They can also be used to resolve an ongoing workplace dispute, for example, a dispute over holiday pay. These agreements can be proposed by either an employer or an employee, although it will normally be the employer.

Once a valid settlement agreement has been signed, the employee will be unable to make an employment tribunal claim about any type of claim which is listed on the agreement.

Where the employer and employee are unable to reach an agreement, the settlement discussions cannot usually be referred to as evidence in any subsequent unfair dismissal claim. Where the settlement discussions are held to resolve an existing dispute between the parties they cannot be used as evidence in any type of claim.

Reaching a settlement agreement

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

  • The agreement 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, such as a lawyer or a certified and authorised member of a trade union.
  • 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.
  • The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.

Employees should be given a reasonable amount of time to consider the proposed conditions of the agreement; the Acas Code of Practice on settlement agreements specifies a minimum of 10 calendar days unless the parties agree otherwise.

Settlement agreements are voluntary and parties do not have to agree to them or enter into discussion about them. There can be a process of negotiation during which both sides make proposals and counter proposals until an agreement is reached or both parties decide no agreement can be reached.

If a settlement agreement is not reached and depending on the nature of the dispute or problem, resolution may be pursued through a performance management, disciplinary or grievance process, or mediation whichever is the most appropriate. It is important that employers follow a fair process and use the Acas Code of Practice on Discipline and Grievance procedures because, if the employee is dismissed, failure to do so may be grounds for a claim of unfair dismissal.

Should you require legal help with your case, please contact us to arrange a meeting with our specialist solicitor in this type matter.