Settlement Agreements

If you have been offered a settlement agreement by your employer we can assist you with your next steps, whether that be to accept the agreement as it stands or to negotiate the terms of the settlement agreement or the offer that has been made to you.

What is a settlement agreement?

A settlement agreement (formerly known as a ‘compromise agreement’) is a legally binding agreement which is designed to enable an employee and their employer to settle any employment claims which arise under the employee’s contract of employment or under statute. Effectively this means that once the agreement is signed you will not be able to bring any claims against your employer (and potentially any associated companies) in either a court or Employment Tribunal. There are usually some limited exceptions to this which will be set out in the settlement agreement.  

A settlement agreement usually offers an ex-gratia payment in return for the employee’s agreement not to pursue any claims against the company in either a court or employment tribunal. We can advise on the reasonableness of any such offer that is made to you and we can assist with any negotiations in relation to the offer.

The contents of a settlement agreement are largely at the discretion of the parties, apart from some particular terms which have to be included. There are particular provisions which an employer will usually require to be included in the agreement. For example, an obligation for the employee to keep the terms of the settlement agreement confidential and to refrain from saying anything derogatory about the company or any of its officers or employees.

Does an employee have to seek legal advice on a settlement agreement?

There are particular requirements that have to be satisfied in order for a settlement agreement to be valid. One such requirement is that employees are required to seek legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal.

An employer usually makes a contribution towards the employee’s legal fees in relation to seeking such advice.

When does a settlement agreement become legally binding?

Until the agreement is signed by both parties it remains ‘without prejudice’. This effectively means that if the agreement is not signed it remains ‘off the record’ and the terms cannot be referred to in a court or employment tribunal, except in limited circumstances. Therefore, the agreement needs to be signed by both parties in order to become a legally binding agreement. 

We have considerable experience in advising on settlement agreements. We advise all employees ranging from senior executives to more junior roles. We can also assist with negotiating the terms of the settlement agreement.