Settlement and Compromise Agreements

Sometimes employers offer employees settlement agreements (formerly known as compromise agreements) to bring their contract of employment to an end, often as a more favourable alternative to redundancy procedure or a disciplinary procedure resulting in dismissal for poor conduct or lack of capability. The certainty and privacy of a settlement agreement often suits both parties.

The advantage of a settlement agreement for the employer is that it can insulate them from any claims from the employee except for latent personal injury claims and accrued pension rights. This is particularly important because generally, employers cannot recover their legal costs incurred through a tribunal claim, even if the claim fails. It is important for employers to realise that the settlement agreement will not protect them unless the employee gets the advice of an independent legal adviser before signing the agreements. Doing it yourself and missing this step is a complete waste of money as you will have paid the employee off with an unenforceable agreement and they can still bring a claim – even if they signed an agreement. Unless the employee has had independent legal advice and a signed certificate from that adviser the employee’s signature on an agreement with the employer has no effect.

The advantage for the employee is that they should receive more than their strict contractual and/or statutory rights compared to a redundancy package or notice following a decision to dismiss. However, the employee may get less than the sum they may be entitled to after bringing a successful claim. Nevertheless, the employee will avoid the stress, risk and legal expense of bringing a claim and will be able to move on swiftly.

Helix Law can draft settlement agreements for employer clients. We also act for employees as their independent legal adviser to ensure that they get the best possible deal. There are clear commercial advantages for both parties in a well-balanced settlement agreement – we can help either side to understand these advantages and allow them to reach a satisfactory conclusion.

Our employment lawyers can help to write or advise on agreements that suit and legally protect either party. Get in touch with us today for more information.

A settlement agreement (formerly known as a compromise agreement) is something offered by an employer to an employee when terminating their employment. They’re mainly used to legally signify that the employee agrees with the terms of which their employment ended, and to protect the company from future Employment Tribunal claims being brought against it. They are often accompanied by compensation or a termination payment to the employee.

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Frequently Asked Questions

Are there different types of a settlement agreement?
What is included in a settlement agreement?
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Are there things that a settlement agreement does not prevent a claim being brought for?
Is a settlement agreement different from redundancy?
What happens if one side rejects the agreement?