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In employment law, a settlement agreement (formerly known as a compromise agreement) is an agreement whereby an employee or worker agrees not to pursue certain employment claims against their employer, in return for which the employer will pay to the employee a sum of money.
For a settlement agreement to be legally binding the employee must obtain independent legal advice and an employer usually contributes towards their legal costs.
Settlement agreements can be used in a range of scenarios; commonly they are used when the employment relationship simply is not working but there are no real grounds for dismissal. In cases such as that, an agreement can be reached whereby the employee leaves in return for a one-off payment.