Problems at work? Here's what you need to know about settlement agreements

If you've been experiencing long-standing problems at work, a settlement agreement could provide a clean break for you and your employer.

A settlement agreement is a legally binding contract that waives an employees' rights to make a claim (which is covered by the agreement) in an employment tribunal or court.

Settlement Agreements - Key Facts

  • The agreement must be in writing.
  • Settlement agreements usually include some sort of payment to the employee. They might also include a reference.
  • Settlement agreements can be offered at any stage of an employment relationship and are voluntary.

Settlement agreements are legally binding and can be used to end an employment relationship on agreed terms. They are also used to resolve ongoing workplace disputes such as disputes over holiday pay. Although settlement agreements can be proposed by an employer or an employee, it's normally the employer who takes the first step.

Once a valid settlement agreement has been signed, employees are no longer able to make an employment tribunal claim about anything  listed on the agreement.

In cases where the employer and employee can't reach an agreement, settlement discussions cannot usually be referred to as evidence in any subsequent unfair dismissal claim. Where settlement discussions are held to resolve an existing dispute, they can't be used as evidence in any type of claim.

Reaching a Settlement Agreement

For the settlement agreement to be legally binding:

  • The agreement must be in writing.
  • The agreement must relate to a specific complaint or proceedings.
  • The employee must have received advice from a relevant independent adviser, for example a lawyer or certified and authorised member of a trade union.
  • The independent adviser must have a current contract of insurance or professional indemnity which covers 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 all relevant statutory conditions regulating the settlement agreement have been met.

In all cases, employees should be given a reasonable amount of time to consider the proposed conditions of the agreement ( the Acas Code of Practice specifies a minimum of 10 calendar days unless both parties agree otherwise).

It's important to remember that settlement agreements are voluntary and neither the employer nor the employee has to agree to them or enter into discussions about them. Sometimes there is a process of negotiation in which both sides make proposals/ counter proposals until an agreement is reached (or until both parties decide no agreement can be reached).

If a settlement agreement is not reached and depending on the nature of the dispute, it might still be possible to reach resolution through a performance management, disciplinary or grievance process, or through mediation, whichever is the most appropriate. Employers must follow a fair process and use the ACAS Code of Practice on Discipline and Grievance procedures - if the employee is dismissed a failure to do so might constitute grounds for a claim of unfair dismissal.

Settlement Agreement Meeting

Although there is no statutory right to be accompanied at any meeting to discuss the agreement, employees might want someone to support them, such as a colleague or a trade union representative. As a matter of good practice, employers should allow an employee to be accompanied in meetings ( and this can often help progress settlement discussions).

Ending the Employment Relationship

If a settlement agreement includes an agreement to end employment, employment can end with the required notice. Alternatively, the timing can be agreed as part of the settlement agreement.

Details regarding payment/ timing should be included in the agreement and any payments should be made as soon as practicable after agreement has been reached.

For expert advice about settlement agreements and all other aspects of employment law, contact James Hodgson at our Halifax office on 01422 339600 or email