Kate Brooks
Partner, Solicitor & Head of Employment/HR Services
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Date Published:18 May 2017 Last Updated:22 Jul 2021

What is a settlement or compromise agreement in employment law?

Employment Law Advice

A settlement (used to be called compromise and is basically the same) agreement is the only way that an employer can lawfully make an employee agree to waive their rights to bring an employment claim.

A settlement agreement is a written agreement between employer and employee. As an employee you will be agreeing to waive all and any claims that you have against your employer. The only claims that you cannot waive under a settlement agreement are future claims of personal injury, and pension claims.

A settlement agreement will also usually seek to preserve or add duties of confidentiality and restrictive covenants.

In return for the employee agreeing to settle all claims the employee will usually receive a termination payment which may include a payment in lieu of notice and/or redundancy payment. Usually the first £30,000 of a termination payment can be paid tax free under a settlement agreement.

In order to make the settlement agreement legally enforceable the employee should receive independent legal advice about the agreement. This means that the employee must have the agreement explained by an independent employment solicitor. The employer will usually cover the cost of the employee having the settlement agreement explained.

If you have been given a settlement agreement or would like some advice on negotiating a settlement agreement please contact me on 01202 057754 or kate.brooks@ellisjones.co.uk.