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Employment law guide

Employment Settlement Agreement

Settlement agreements, formerly known as compromise agreements, are a binding written agreement between an employee and their employer under which the employee agrees to settle a claim that they have or potentially have against their employer.

Apart from a settlement reached in a conciliation by ACAS or a mediation by ACAS or the tribunal, an employee’s claim to an employment tribunal can normally only be resolved by an order of the tribunal determining the matter, or dismissal on withdrawal by the applicant.

Normally any type of agreement that attempts to prevent somebody instituting or continuing with proceedings before an employment tribunal is void under Section 203 Employment Rights Act 1996.

However, the law allows an employer and employee to reach a binding written agreement that only applies if specified conditions are met.

An employer who wants to agree terms for someone to leave their employment obviously does not want that employee to leave and bring a claim in a tribunal alleging they have been dismissal or a victim of discrimination.

For that reason many employers want to negotiate enhanced terms for redundancies and retirements or in other circumstances where there is a potential for the employee to later bring a tribunal claim.

In practice it is common for employers and employees to enter into a settlement agreement where the employer pays the employee a sum of compensation and the employee gives up their right to bring a tribunal claim or discontinues any proceedings that have been commenced.

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