Settlement agreements: an employee’s guide

Has your employer offered you a settlement agreement? Are you facing redundancy and want to know your rights regarding redundancy pay? Simon Thomas, partner at Hutchinson Thomas and employment law expert, explains what a settlement agreement is, and what your legal rights are as an employee.

Settlement agreements, formerly known as compromise agreements, came into effect on 29 July 2013 and are legally binding documents, often used to end an employment relationship. They set out the terms and conditions agreed by both parties involved – employer and employee – prior to the employee leaving the organisation.

They can also be used to resolve ongoing workplace disputes, like disagreements over holiday or sickness pay, and can be proposed by either an employer or an employee – though in most cases it is the employer.

Settlement agreements are, therefore, legally binding contracts that waive an individual’s rights to make a further claim – regarding the terms and conditions of the agreement – to an employment tribunal or court.

Though the nature of the document may vary slightly, there are several key points that must be observed in order to make it legally binding:

  • The agreement must be in writing.
  • The agreement must relate to a specific complaint or proceedings, i.e. terms of redundancy.
  • Upon receipt of the agreement, the employee must receive legal advice from a relevant independent adviser.
  • The independent legal adviser must have a current contract of insurance or professional indemnity covering 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 the applicable statutory conditions regulating the settlement agreement have been met.

Settlement agreements can be offered at any stage of an employment relationship (though in the case of redundancy this will usually be at the end), and once a valid settlement agreement has been signed, the employee will be unable to make a further employment tribunal claim about any issues outlined in the agreement.

It is therefore vital that you, as an employee, are confident that the legal advice you receive is totally independent. The legal adviser must not be employed by, acting for, or directly connected with the employer in any way.

You (and your legal representative) also need be given a reasonable amount of time to consider the proposed terms of the agreement. What a reasonable amount of time is may be open to debate and depend on the circumstances of each case, but a minimum of 10 calendar days is usually advised, unless both parties agree otherwise.

It is important to remember that settlement agreements are voluntary, and, as an employee, you do not have to agree to them or even enter into discussion about them. So, it is advisable to take legal advice at the earliest opportunity to avoid the potential of stalemate between you and your employer.

Negotiation can be entered into before the agreement is even formally drawn up, during which time both sides can make proposals and counter proposals until mutually agreed terms are reached.

Here at Hutchinson Thomas, we have twenty years’ experience in providing settlement agreement advice to individuals – and groups of individuals – and can make sure that your best interests are always protected. We can usually offer free same day appointments, and give you your options, so you will be able to make an informed decision as to whether the settlement agreement being offered is the best for you.

We can give advice either in person, by Teams/Zoom or by telephone.

If you wish to receive an immediate response to your enquiry, please telephone Simon Thomas on 01639 640164 or email at