Settlement Agreements

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If you have been offered a Settlement Agreement (sometimes called ‘a Compromise Agreement’ or a ‘Package’) by your employer, you need the best advice possible to maximise your compensation and ensure that the deal you are getting is right for you.

A Settlement Agreement (known as a Compromise Agreement until July 2013) is a document that allows an employee to agree with their employer not to pursue an Employment Tribunal claim, and not to initiate legal proceedings in the future.

This document can effectively and efficiently bring an end to an employment relationship and, through successful negotiation between advisers, can usually bring about a mutually beneficial and amicable solution for both parties.

A Settlement Agreement is often used to record the terms of an employee’s departure from their employment where, typically, they receive a termination payment (up to £30,000 of which may be tax-free) in return for the waiver of current and potential statutory or common-law claims against their employer.

For a Settlement Agreement successfully to waive those rights, certain statutory conditions must be met:

  • The Agreement must be in writing
  • The Agreement must relate to a “particular complaint” or “particular proceedings” – in other words, the claims waived must be identified
  • The employee must have received independent legal advice on the agreement and, in particular, on its effect on their ability to pursue the statutory rights/claims that are intended to be waived
  • The Adviser must be identified in the Agreement
  • The Adviser must have insurance in relation to the advice
  • The Agreement must state that the legislative conditions regulating Settlement Agreements have been met

Whilst a Settlement Agreement is a very useful tool, it can’t be used to compromise an employee’s claim for accrued pension rights, claims for latent/future personal injury, or claims to enforce a Settlement Agreement under breach of contract.

If you are offered a Settlement Agreement you must seek legal advice from a solicitor or other suitably qualified adviser before the Agreement can become binding. The solicitor may be required to sign the Agreement, or a separate Certificate, to confirm that you have received independent legal advice.

Often employers will make a contribution to the cost of you seeing a solicitor to discuss a Settlement Agreement. In many cases a solicitor will be able to recover from your employer the full cost of taking legal advice.

Protected Conversations

Since July 2013, employers have also been allowed to have what are commonly described as “Protected Conversations” with employees.

This allows the employer to discuss with you the possible termination of your employment (under the terms of a Settlement Agreement) without fear that the conversation will be referred to in an Employment Tribunal. It is worth noting that the legislation describes these conversations as “Pre-Termination Negotiations” and this point is not always fully understood by employers.

Unless termination lies at the heart of the conversation it will not be “protected” and the conversation may later be referred to in an Employment Tribunal. The regime of Protected Conversations is never available in cases involving alleged discrimination.


For more information about how Blacks can help you with a Settlement Agreement, or for a free no obligation discussion, please email or call our Employment Law team today on 0113 207 0000.