What is a Settlement Agreement?
Contracting out of your rights (known as settlement agreements since 2013)
In certain situations you may agree with your Employer to give up, or contract out of , your statutory employment rights, (including agreeing not to take your case to an employment tribunal,) under an agreement with your Employer known as a settlement agreement. These were called compromise agreements until 2013.
An example might be when your Employer approaches you with an offer to part company on some agreed terms as an alternative to disciplinary action or redundancy.
In return for giving up your rights in this way you should be offered some compensation from your Employer. This is often subject to negotiation, and some important issues need to be resolved, including: the financial settlement, terms of a reference, your reason for leaving the business etc.
Settlement Agreements will only be legally recognised when a number of conditions are satisfied:
(a) the agreement must be in writing;
(b) the agreement must relate to specific and particular complaints eg. unfair dismissal or discrimination;
(c) you must have received independent legal advice from a relevant independent adviser, often a solicitor, but not one linked to your Employer. Normally your Employer or union will pay a set amount for this legal advice.
(d) your legal advisor must have in force an insurance policy or professional indemnity to cover the risk of a claim for losses because of poor advice;
You are entitled to a ten day “cooling off period” and your Employer must act in a reasonable manner throughout the process – for example not putting you under pressure to agree; or threatening dismissal if you do not sign it.
Just a word of caution. Since 2013, provided your Employer acts “reasonably”, the content of any discussions connected with a Settlement Agreement cannot be used in evidence in any subsequent tribunal claim for unfair dismissal – by you or the Employer. Claims for discrimination can however still proceed using the conversations as evidence of discrimination.