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Settlement Agreements - Employers

Please click here if you are an employee and want to find out more about settlement agreements.

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.

Settlement agreements are still commonly referred to as compromise agreements as ultimately they compromise an employee’s claims. Such agreements are used to record an employee's terms of departure where they are to receive a termination payment in return for the waiver of all actual and potential statutory claims against the employer. 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.

For a settlement agreement to be legally binding, the employee must obtain independent legal advice. As a result of that condition, an employer must contribute towards the legal costs incurred by the employee in obtaining the advice. Settlement agreements can be used in a range of scenarios. In addition to those mentioned above, commonly they can be 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. Our specialist employment solicitors regularly draft and advise on settlement agreements (compromise agreements).

As always, our employment solicitors will tailor the advice to your specific case, using the benefit of their years of experience.

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