A guide to Settlement Agreements

What is a Settlement Agreement?

A Settlement Agreement (or Compromise Agreement as they were previously known) is a legally binding arrangement between two parties: the employer and an employee. The agreement sets out the terms and conditions that have been agreed by the employer and an employee to end an employment relationship or resolve a workplace issue. 

By signing the Settlement Agreement, the employee agrees to waive his or her right to bring claims covered by the agreement to an employment tribunal or court.

When might a Settlement Agreement be used?

There could be a wide range of scenarios for which a Settlement Agreement can be used. One of the more common scenarios is to end an employment relationship which is no longer functioning in a mutually beneficial way for both parties involved. 

They can also be used to resolve workplace disputes or other work-related issues, without the need to terminate the employment relationship. For example, a Settlement Agreement can be used by an employer to settle a holiday pay dispute. 

Why use a Settlement Agreement?

If discussions or workplace disciplinary procedures have failed to resolve a dispute, a Settlement Agreement can often be a quicker and less stressful way to settle the issue than an employment tribunal. Their use encourages the airing and resolution of grievances and brings the employment relationship to an end in a less acrimonious manner than can be achieved in other ways. However, Settlement Agreements usually include a payment to the employee, so the financial cost of compensation should be considered by the employer. 

One of the main benefits of using a Settlement Agreement is that through a process of negotiation it allows an employer and employee to end a workplace relationship or resolve a dispute in a legally binding manner without the need for costly tribunal proceedings.

When to ask for advice about a Settlement Agreement

If you are presented with a Settlement Agreement, you will need to receive legal advice from a relevant independent adviser. Our experienced employment team can help you with this and typically your employer will pay our costs. 

If you are an employer considering using a Settlement Agreement, it is advisable to seek legal advice to ensure the agreement is valid and that you follow a fair process.

Ensuring a Settlement Agreement is Valid

There are a number of conditions that must be complied with to ensure a Settlement Agreement is valid:

• The agreement must be in writing. 
• The agreement must relate to a particular complaint or proceedings. 
• The employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal.
• The independent adviser must have a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from the advice. 
• The agreement must identify the adviser. 
• The agreement must state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied. 

There are various Settlement Agreement templates available online, however, it is advisable for any employer considering entering into a Settlement Agreement to seek legal advice to ensure the agreement is valid and that they follow a fair process. Failure to do so may be grounds for a claim of unfair dismissal.

Quick and Efficient Employment Law Advice from Hegarty

Whether you are a small, medium or large business, at Hegarty we offer tailored employment law advice on a wide range of issues. From employment contracts and handbooks to settlement agreements and tribunals, our experienced employment law team offer a fast and cost-effective service.

Learn more about Settlement Agreements in our Q&A area or contact our team using the form below.