Settlement Agreements for Employers

A settlement agreement is a legally binding document which an employee and an employer sign in order to terminate an employment contract. It’s sometimes referred to as a ‘severance agreement’ or ‘compromise agreement’.

By signing a settlement agreement, the employer usually agrees to pay their former employee a sum of money. In return, the employee agrees not to take legal action against the employer.

Settlement agreements are often used when making employees redundant as they provide a confidential and legal method for employee and employer to part ways on agreed terms. They are also used to close claims of unfair dismissal or discrimination in the workplace.

What are the benefits of settlement agreements?

A properly drafted settlement agreement is legally binding. You therefore won’t have to worry about your former employee making further demands in the future.

What’s more, as an employer, it’s usually more cost-effective for you to make a settlement agreement with a current or former employee than allowing the dispute to reach an employment tribunal.

A specialist settlement agreement solicitor can advise you on how much a tribunal might award a disgruntled employee. This then enables you to make a judgment on what kind of lump sum to offer for a settlement agreement instead.

How do settlement agreements work?

Settlement agreements replaced compromise agreements in July 2013.

A specialist employment lawyer will usually draft a settlement agreement. They offer a way to resolve employment disputes or head off potential employment disputes. A settlement agreement can be offered to an employee who has raised an issue, such as accusations of unfair dismissal. It can also be used where there is the potential for a claim, e.g. when making someone redundant.

For a settlement agreement to be legally binding, it must:

  • Be in writing
  • Relate to a specific issue or issues (i.e. it cannot be a blanket agreement for the employee not to bring an employment claim for any reason)
  • Only be signed by the employee after they have taken independent advice from a lawyer or certified, authorised trade union member
  • Identify the employee’s adviser
  • State the statutory conditions regulating the agreement

You will need to give the employee an appropriate amount of time to consider the agreement before signing. Acas recommends a minimum of 10 days for this.

Get in touch with our settlement agreement solicitors in Bristol and South Gloucestershire

For more information on how to negotiate a successful settlement agreement, or to speak to our employment lawyers in Bristol and South Gloucestershire, call us on 0117 325 2929 or complete our online enquiry form.


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