Settlement Agreement

A settlement agreement is a legally binding contract, usually between an employer and an employee, used to end the employment relationship on agreed terms. Its main feature is that it waives the employee's right to bring a claim to a court or employment tribunal on the matters specifically covered by the agreement; settlement agreements were previously called 'compromise agreements' and are voluntary, meaning neither party has to enter into discussions or accept the terms first proposed.

For a settlement agreement to be legally valid it must be in writing and must relate to a particular complaint or proceedings — simply stating 'full and final settlement of all claims' is not enough, and the agreement has to specifically state the claims it is intended to cover. The employee must also have received advice on the terms and effect of the agreement from a relevant independent adviser, who can be a qualified lawyer, or a certified and authorised trade union official or advice centre worker, and that adviser must be identified in the agreement.