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A settlement agreement (or compromise agreement as they were formerly known) is a statute based legally binding contract between an employer and an employee which severs the employment relationship between them.
The employee will usually waive their right to bring a claim against the employer in the Employment Tribunal over matters covered in the settlement agreement, in exchange for monetary compensation.
Settlement agreements can also be used to bring to an end an ongoing dispute, such as a disagreement over sick pay, holiday entitlement or bonus.
Requirements of a Settlement Agreement
More often than not, settlement agreements are proposed by the employer. To be valid:
- The agreement must be in writing.
- The agreement must relate to a particular complaint or proceedings.
- The employee must have received advice from a relevant independent adviser, such as a lawyer or a certified and authorised member of a trade union.
- 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 applicable statutory conditions regulating the settlement agreement have been met.
Our employment solicitors have many years’ experience acting as advisers to settlement (and formerly compromise) agreements. We will ensure that you fully understand the ramifications of any such agreement and advise you in a manner that protects your best interests.