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Settlement Agreements

Settlement Agreements

What is a settlement agreement?

A Settlement Agreement (sometimes known as a Compromise Agreement) is a legal contract which employers and employees enter into to resolve (settle) their disputes, often leading to the employee’s employment terminating for a sum of money known as compensation as well as other contractual payments.

There are specific legal requirements to ensure that a Settlement Agreement is legally binding and one of these is that the Employee must obtain legal advice from a relevant independent adviser such as a solicitor.

At Swan Craig, we have significant experience in dealing with Settlement Agreements. With many years of drafting, reviewing and advising on Settlement Agreements, our experts are on hand to assist you with any matters that arise. Whether you are an employer requiring a draft Settlement Agreement for your business or an employee looking for advice on a Settlement Agreement that has been proposed to you, we are well equipped to deal with your queries.

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What is the purpose of a settlement agreement?

Settlement agreement

The purpose of a settlement agreement is for an employer to:

  • to agree a termination of the employee’s employment and buy out almost all legal claims an employee has against it (think of an out of court settlement but without any court action having been started).  Some claims cannot be excluded, such as accrued pension rights and unknown personal injury claims.
  • they can be used where an employee remains employed, where there is a contract change and the employer wants to buy the employee out of a costly or burdensome benefit, such as a final salary pension or certain insurance benefits. 

Settlement agreements are commonly used:

  • To resolve a grievance and/or disciplinary
  • To pay an enhanced redundancy over the statutory amount
  • To avoid the need for performance management

Is a settlement agreement legally binding?

Yes, provided you take legal advice.  You have to take independent legal advice from a ‘relevant independent adviser’ – which means from either:

  • a qualified lawyer (like us),
  • a trade union official/employee/member who has been certified as competent to give advice (and authorised to do so) by the trade union or,
  • an individual working in an advice centre who has been certified as competent to give advice (and authorised to do so) by the centre.

Put another way, it is a very important legal contract concerning employment law rights so it goes without saying, legal advice is needed to make sure it is legally binding for both sides. 

In order for the employer to know the employee has received legal advice, the adviser will either need to sign a schedule in the agreement, or provide a separate letter (on their firm’s letterhead) called an Adviser’s Certificate.

Most employers will offer a contribution to the employee’s legal fees.

How we work:

When dealing with Settlement Agreements, our client is at the forefront of the process. We will ensure that you understand the terms of the Agreement, how this impacts you or the business as well as drafting any required amendments needed to protect your position. We pride ourselves in taking a human approach to Settlement Agreements. They often cover complex areas of law, and our aim is to always ensure that this is explained in understandable terms, ensuring that you are equipped with the knowledge to ensure you understand what it is that you are signing.

We will also take away the stress of negotiating with the other party whether that be your employer or the employee (or their representative). This means that we can take away the stress of your settlement agreement.

If you want to find out more about how we can assist you with your Settlement Agreement, get in touch today.

Settlement agreements

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    We have 18 years of experience providing legal employment and commercial law advice for various matters and industries.


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