Settlement Agreement – The Basics


If you are asked to sign a settlement agreement by your employer, you have a decision to make. This can be a daunting and stressful experience. Here is a brief guide to help you decide….

What is a settlement agreement?

In employment law, a settlement agreement (formerly known as a compromise agreement) is given whereby an employee or worker agrees not to pursue certain statutory employment tribunal claims against a respondent or potential respondent to a claim. The settlement agreement is commonly used to record an employee’s terms of departure. In return, the employee or worker receives a termination payment for the waiver of all actual and potential statutory (and usually common law) claims against the employer.

Do I have to sign the agreement?

You do not have to sign a settlement agreement. You can refuse to sign it and preserve your full rights to make a claim against your employer.

You can also try to negotiate with your employer and make proposals to reach an agreement. If a settlement agreement is not reached a performance management, disciplinary or grievance process may commence, depending on the nature of the issue

Your employer must follow a fair process and failure to do so may result in grounds for unfair dismissal if you are dismissed.

Get advice.

If you are offered a settlement agreement, you should get legal advice before making a decision. It is in fact a legal requirement for you to do so and an agreement will not be binding until you have received independent legal advice on it.  Your employer is likely to pay for your legal advice or at least make a significant contribution towards your legal costs.

The law will only recognise the agreement if it has been signed off by a solicitor or certified trade union or adviser who has a current contract of insurance or professional indemnity. The insurance or professional indemnity must cover the risk of a claim by you in respect of loss arising from the advice.

For a valid waiver of statutory employment rights, certain statutory conditions must be met:

– The agreement must be in writing.

– The agreement must relate to a particular complaint or particular proceedings.

– 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 in question.

– The adviser must be identified in the agreement.

– The adviser must have insurance in relation to the advice.

– The agreement must state that the conditions regulating settlement agreements in the relevant legislation have been met.

We can also advise you on the terms and effects of the settlement agreement as well as help you to negotiate, if you do not believe that you are getting a fair deal. We will also assess the merits of accepting the agreement, including whether there are any grounds of discrimination or unfair dismissal that you can claim against your employer.


The content in this article is intended to provide a general guide to the subject matter, and does not constitute legal advice. Contact us for specific advice about your circumstances.


If you would like any advice or further information in relation to this topic, please contact us at your convenience, on 02031300772 or on to see how we can help you. Alternatively, you may wish to consider one of our fixed fee packages.