What is a settlement agreement and its benefits?

A ‘settlement agreement’ (otherwise known as a compromise agreement) is a legally binding document following the termination of your employment.  It will set out the full terms of settlement between you and your employer, which invariably includes termination payments to you, in return for which you agree not to pursue any claim you may have to an employment tribunal.  Once you sign the settlement agreement, there is no going back. It becomes absolutely binding as if it were made by an Employment Tribunal.

The settlement agreement will only become binding once you have received independent legal advice on it, usually be a qualified solicitor, and that solicitor has attached a certificate confirming the advice that has been given.

The main benefit of entering into a settlement agreement is to provide certainty between the parties, and a clean break situation. As an employee, you will invariably be receiving a tax efficient payment under the agreement together with a job reference and clauses ensuring that your employer does not bad mouth you. In turn, your employer will be able to ensure that you do not make any future claim against them. With the outcome of many employment tribunal claims being uncertain and costly, the settlement agreement route facilitates an easy and speedy resolution of the ending of your employment relationship where all terms are set out in a singular document.

Click here for more usual terms found in a settlement agreement.

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