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Guide to settlement agreements

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Posted by Tina Chander on 10 April 2014

Tina Chander - Head of Employment Law
Tina Chander Partner - Head of Employment Law

What is a settlement agreement?

settlement agreement is a legally binding agreement without the use of an Acas conciliator between an employer and an employee (or other parties to a statutory claim) which either settles the claim or refrains the employee from commencing a claim. 

What are the conditions for a valid settlement agreement?

  • The agreement must be in writing.
  • The agreement must relate to a particular complaint or particular proceedings.
  • The employee must have received independent legal advice from a relevant adviser on the terms and effect of the settlement agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal.
  • The independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim brought by an employee in respect of the advice given by the independent adviser.
  • The agreement must identify the adviser.
  • The agreement must state that the conditions relating to settlement agreements have been satisfied. 

Can all claims be settled by a settlement agreement?

No. Claims in respect of the failure to inform or consult or failure to pay the protective award under TUPE 2006 and claims for failing to inform and consult with appropriate representatives on collective redundancies under the Trade Union and Labour Relations (Consolidation) Act 1992 cannot be compromised by a settlement agreement. It is possible to compromise an employee’s right to bring a claim for failure to pay a protective award under the Trade Union and Labour Relations (Consolidation) Act 1992.

Is a settlement agreement that signs away all of an employee’s tribunal rights enforceable?

No. The actual potential claim must be identified, for example unfair dismissal or a reference to the section of the Statute giving rise to the claim must be referred to. 

Can a settlement agreement cover claims in which the parties have no knowledge of?

Yes providing the claim is fully and clearly expressed. 

Can an employer insert a requirement that the employee repays the termination payment if the employee brings a claim?

Yes but a court could take the view that the clause was void as it could be deemed a penalty. 

How can a settlement agreement be enforced?

  • In the civil courts for breach of contract; or
  • in the employment tribunal as a contractual claim providing the settlement agreement was made before the termination of employment.

Before 29 July 2013 settlement agreements used to be called compromise agreements.

About the author

Tina Chander

Partner - Head of Employment Law

Tina is head of our employment law team. She deals with contentious and non-contentious employment law issues.

Tina Chander

Tina is head of our employment law team. She deals with contentious and non-contentious employment law issues.

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