A Settlement Agreement (formally known as a Compromise Agreement) is a legally binding contract between an employer and employee to compromise an employee’s contractual and statutory claims, mainly on the termination of employment. By law, an employee will need to take independent legal advice before signing a Settlement Agreement. The employer will usually offer compensation to the employee in exchange for the employee ending their employment and agreeing not to bring any claim against them.

A Settlement Agreement effectively provides a clean break between the employee and the employer with both parties having agreed the terms of the settlement. The employee will have a document detailing the termination of employment, which will set out the financial settlement they have agreed with the employer, and can also include a job reference etc. The employer will have the guarantee that the employee will no longer be able to issue any claim against them now they have left their employment and they have avoided a potentially long drawn-out issue of contention with the employee.

An employer may offer a Settlement Agreement during or after employment. A Settlement Agreement may also be offered during an existing dispute with an employee in an attempt to bring the dispute to a close. Sometimes an employer will suggest the idea through a protected conversation, a confidential off the record chat under section 111A of the Employment Rights Act 1996. They can effectively be used to avoid a time-consuming disciplinary or redundancy process which usually incurs a substantial financial cost for an employer.

• It is standard that the employer normally pays for the cost of the advice. However, the advice that we give to employees on Settlement Agreements is entirely independent.
• We can usually offer an appointment within 24 hours.