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Settlement Agreements

A settlement agreement or as it used to be known a compromise agreement, is essentially a contract to be agreed between the employer and the employee which serves to settle particular claims that the employee may have normally in return of a sum of money.

They are used in a variety of claims however mostly where an employer seeks to bring an employee’s employment to an end where otherwise there may be claims bought against the employer at an employment tribunal. These types of agreement are not legally enforceable unless the employee has received independent legal advice and there is a requirement for the employee to be advised on the terms and effect of the agreement by someone qualified to give that advice.

The employer usually pays a contribution towards the employee’s legal fees in order for them to attain the necessary advice on the agreement. The settlement agreement can serve to waive the employee’s rights to bring claims in the employment tribunal, county court or high court, and can include a variety of claims from unfair dismissal, discrimination claims and even unlawful deductions from wages. There are certain statutory requirements for a settlement agreement to be binding in order to prevent the employee bringing claims against the employer and these requirements are succinctly set out under Section 203(3)(c) of the Employment Rights Act 1996:

  1. The agreement must be in writing.
  2. The agreement must relate to particular proceedings (for example it should set out in the agreement the particular claims the employee may have against the employer which may be settled by the agreement).
  3. The employee must have received advice (from a relevant independent advisor) on its effect on their ability to bring claims against their employer and in general on the terms and effect of the agreement.
  4. The advisor who gives the advice must be covered by a contract of insurance when indemnity covering the risk of a claim by the employee in respect of loss arising inconsequence of that advice. It is therefore usually solicitors who provide such advice but they must be independent and therefore cannot have advised the employer in relation to the same matters.
  5. The agreement should set out who the advisor is.
  6. The agreement must state somewhere therein that the conditions relating to settlement agreement have been satisfied.

If you or if any of your colleagues may be suffering difficulties at work and wish to try and negotiate a settlement agreement with your employer or indeed have been presented with a proposed settlement agreement upon which you are required to take advice please contact one of the Biscoes employment team who can arrange to assist you and bring the matter to conclusion.


For further information or to speak to one of our experts, please get in touch