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.

They are that the agreement:
• Relates to a particular complaint or proceedings.
• Is made when the employee has had independent advice as to the terms and effect of the agreement and the effect on their ability to pursue a complaint before a Tribunal.
• Identifies the advisor.
• Where the advisor has a contract of insurance or a professional indemnity covering the risk of a claim by the employee in respect of loss in consequence of the advice.
• States specifically that the conditions regulating settlement agreements are satisfied.

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.

The agreement will often provide for arrangements for return of property and agree terms of a reference. The employee must go to his own independent solicitor or advisor for advice and the employer usually pays for the advice as part of the agreed package.

A settlement agreement must “relate to the particular proceedings” that it is intended to compromise. It follows that it cannot therefore make a “blanket” compromise of all claims that could be made because you cannot use an agreement to exclude a Tribunal claim that has not been made or raised by the employee or future claims that have not arisen or been intimated by or on behalf of the employee.

To get around this it is common for agreements to settle a particular claim that has or could be made and then to include a separate full and final settlement and a ‘clawback’ clause so that if the employee brings any proceedings after signing the agreement the compensation becomes repayable as a debt. Also agreements commonly contain express warranties by the employee that they are not aware of any other claims or the basis for making such claims.

Negotiations before dismissal or settlement

The law allows some discussions between employers and employees to be conducted in a without prejudice way that cannot be referred to in any subsequent Tribunal proceedings.

Getting advice about settlement agreements

If you have been offered a settlement agreement by your employer you need to seek independent legal advice.

Why do I need independent legal advice?

It is important that you seek independent legal advice before signing a settlement agreement, and also a legal requirement. Once you sign the agreement you will not be able to make a claim against your employer at the Employment Tribunal.

Who pays for my independent legal advice?

Normally your employer will agree to pay for you to receive independent legal advice.

Advice from Martin Phillips – employment lawyer

London-based Solicitor Martin Phillips is an expert at advising employees about the implications of signing a settlement agreement.
Martin Phillips can see you by appointment at his offices in London W1.
Telephone 0207 998 7777