What are Settlement Agreements?

September 12th 2023

Settlement Agreements are contracts in which a current or former employee or worker agrees to waive or settle various claims against an employer.

To be a valid Settlement Agreement, there are six conditions that need to be satisfied which are:-

  • The agreement has to be in writing;
  • It must relate to a “particular complaint” or “particular proceeding;”
  • The employee/worker must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and in particular its effect on the employee’s/worker’s ability to pursue their rights before an employment tribunal;
  • The agreement must identify the adviser;
  • The adviser must have a current contract of insurance, or indemnity provided for members of a profession or professional body, covering the risk of a claim by the employee/worker in respect of loss arising in consequence of the advice; and
  • The agreement must state that the conditions regulating Settlement Agreements in the relevant Act or Regulations have been satisfied.

Often Settlement Agreements include additional clauses such as new restrictive covenants, employee warranties, announcements and agreed references.

Can a Settlement Agreement be used even if employment is not terminating?

Yes, a Settlement Agreement can be used for waiving claims even if employment is not being terminated.

Can you waive all claims by using a Settlement Agreement?

No, it is not possible to waive all claims by using a Settlement Agreement as certain statutory claims can only be waived through ACAS. Claims in relation to accrued pension rights and future personal injury claims are also not possible to waive along with certain claims under the Patents Act 1977. It is also unclear whether it is possible for a Settlement Agreement to waive unknown future claims as there is conflicting case law on this.

Should an employer seek advice before using a Settlement Agreement?

Employers should seek bespoke advice on Settlement Agreements to ensure that any Settlement Agreement covers any potential claims they are looking to settle which is also binding. They should also be aware of their limitations.

The contents of this article is a general guide only at the date of publication.  It is not comprehensive and it does not constitute legal advice.  Specific legal advice should be sought in relation to the particular facts of a given situation.