Settlement Agreements

Search For A Job Concept Of RecruitmentIn the event of a workplace dispute or redundancy, the employer and employee can create a contract known as a settlement agreement.

The agreement involves assurances of no future legal action from the employee against the employer, in relation to the dismissal or redundancy. The employer generally will offer some sort of cash settlement in return. 

The written agreement will include all of the appropriate details, including the specifics of assurances offered by the employee and employer and the nature of the settlement reached. The terms of this agreement must be agreed and signed formally by both parties before it comes into effect. From this point the employee is bound by the terms agreed, which also tends to include a confidentiality clause. 

It is also worth remembering they are voluntary agreements, and neither party is obliged to be bound by them. Given these are legally binding contracts, it is important to take time to agree on the terms of the settlement. Once signed, they cannot be changed.

If offered, the employee is perfectly within his or her rights to reject a settlement agreement, for any reason they deem fit. If the reason is that the compensation offered by the employer is insufficient then, via a lawyer or an Employment Tribunal, another settlement can be reached.

Content of a settlement agreement

For it to be legally binding, a settlement agreement must be made in writing and:

  • contain information about the complaint or proceedings the settlement relates to
  • advice from an independent legal adviser or a certified trade union representative must be given to the employee
  • this adviser must have either a contract of insurance or professional indemnity insurance so as to cover the risk of financial loss being caused by reliance on the advice
  • it must specifically identify this adviser
  • it must state that the statutory conditions placed on settlement agreements have been met
  • details of payments agreed between the parties must be included
  • details concerning the timing of any payments agreed must also be included

The employee has to be given a reasonable amount of time to decide to sign the agreement, and this period has to be a minimum of 10 calendar days from when the employer proposes it to them. If both parties agree this period can be shortened.

It is strongly advised that any employee discussing a settlement agreement with their employer should bring someone with them to this meeting. This could be a collegue, lawyer or trade union representative. It is a matter of good practice for the employer to allow this to happen.


The advantages of a settlement agreement are fairly clear. For the employer it avoids the possibility of any future legal action to do with the dismissal or otherwise. For the employee it means they receive compensation and get financial security before leaving their job.   

If your settlement agreement was not reached, there are other steps that can be taken to resolve your employment dispute.

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