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A guide to settlement agreements

If you are in the unfortunate situation of being made redundant, your employer may ask you to sign a Settlement Agreement (formerly known as a Compromise Agreement).

Terms of a Settlement Agreement

Settlement Agreements typically involve:

• An ‘enhanced’ severance payment in return for you promising that you will not pursue your employer in the Court or Tribunal for any claim arising from your employment, or its termination.

In addition, you may also be required to make other legal promises such as to maintain confidentiality, not to bad-mouth your employer and/or to agree not to work for a competitor, or contact ex-customers or clients for a time after you leave.

What are the benefits?

For an Employer, a Settlement Agreement offers protection from future litigation. For an Employee, an enhanced (often tax-free) payment and an agreed reference as an incentive to give up their employment rights.

Independent Legal Advice

A Settlement Agreement is only legally binding if you have obtained independent advice from a qualified solicitor, or certified trade union representative. Your adviser’s role is to ensure that you fully understand the terms and implications of the agreement before you both sign it.

This is an important document, so if you instruct a solicitor, you should make sure they have specialist employment law experience.

Employers usually make a contribution towards the cost of you obtaining legal advice from a solicitor.

Do I have to sign?

You cannot be forced to sign a Settlement Agreement, but if you choose not to, your employer is likely to make you redundant anyway, and only pay you your minimum contractual and statutory entitlements.