Settlement agreements: the rights, the risks, the rewards
Settlement agreements can be tricky to navigate, but outlined below you will find clear and practical guidance.
What is a settlement agreement?
A settlement agreement is a legally binding contract between an employee and employer to resolve an employment dispute. The employee waives their right to a legal claim, in return for compensation, usually financial.
It is often used when there is a breakdown of the working relationship, and the employee’s employment contract is terminated. But this is not always the case.
Is a settlement agreement voluntary?
Yes, an employee does not need to sign one, and they should take legal advice before doing so.
What does a settlement agreement consist of?
- A written document
- Relates to a particular complaint or proceedings
- Legally binding
- Termination date
- Financial terms
- Waiver of claims
- Confidentiality clause
- Return of company property
- Reference
Why should you use a settlement agreement instead of bringing a claim in an employment tribunal?
A settlement agreement is cost-effective as it avoids the time-consuming and expensive legal costs that come with arguing or defending a claim in court.
If the employer-employee relationship has broken down, then it can allow for an amicable parting of ways; a tribunal by its very nature creates a hostile relationship. Employees can leave with dignity, and quickly.
Settlement agreements can be tailored to suit the needs of the situation, for example an employee may benefit from references, financial compensation, or other support.
A settlement agreement provides a clear and final break and no future claims can be made.
For more information about settlement agreements or other employment queries, please contact Umberto Vietri on 01274 352056 or email umberto.vietri@awbclaw.co.uk
17 July 2025
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