Settlement agreements
for employers.

A settlement agreement, formerly known as a compromise agreement, is a legally binding contract in which an employee agrees to give up claims against your business, usually in return for a payment. It is often used at the end of employment, including on redundancy, but it can also resolve a dispute during employment. Used well, it helps you avoid the cost, time and uncertainty of an employment tribunal.

For the employee’s statutory claims to be validly settled, the agreement must meet conditions set out in the Employment Rights Act 1996 and the Equality Act 2010. Among other things, it must be in writing, relate to the particular complaints being settled, and the employee must have received advice on its terms and effect from a relevant independent adviser. If those conditions are not met, the employee may still be able to bring the claims you thought were closed.

How you reach the agreement matters too. Discussions can take place on a “without prejudice” basis where a genuine dispute already exists, and the Employment Rights Act 1996 also protects pre-termination negotiations in ordinary unfair dismissal claims. Neither protection is unlimited. Threats, undue pressure, discrimination or misleading statements can remove it and expose your business to further risk.

We draft agreements that are clear about what is being settled and on what terms, including payments, notice, confidentiality and references. Where the employee is represented, we negotiate with their adviser. Where ACAS is involved, we can advise on a COT3 agreement instead, which needs the same care over its wording.