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Settlement Agreements


The purpose of a Settlement Agreement (formerly Compromise Agreements) is to support the mutual termination of a contract of employment, where there is a potential legal dispute.  Essentially the employer pays the employee ‘compensation’ in return for the employee agreeing to waive their employment rights in settlement of their potential claim(s) against the employer, (save for limited exceptions).

Entering into a Settlement Agreement is a legally binding way to bring the employment relationship to an end.  An employee must receive independent legal advice on the rights they are abandoning for the agreement to be binding and it is commonplace for the employer to pay or make a significant contribution towards the employee’s legal fees, in taking legal advice on the agreement.

The advantage of negotiated settlement agreements is that the parties ultimately reach a mutual agreement between them. If they were to go to an Employment Tribunal, a court decision is imposed on the parties, normally after considerable legal costs have been incurred during stressful litigation.  Settlement Agreements are not just designed to set out the amount of money to be paid; they can be drafted to include specific clauses dealing with confidentiality and non-disparagement to protect an employer’s reputation.

If you have a potential dispute with an employee or wish to discuss how Settlement Agreements might be used within your business, please contact HRx