Springhouse Solicitors

Settlement agreements – everything you need to know

Once a departure has been agreed, the aim of a settlement agreement is to give the employer confidence that the employee cannot bring any legal claims against them in the future. The benefit to the employee is that this will usually be accompanied by a reasonable sum of money.

So, what do settlement agreements do, and what form do they take?

What do settlement agreements do?

Settlement agreements are used to stop employees from bringing any number of legal claims against their employer.

There are certain employment law claims which employees can only waive if an agreement in the right format is entered into. Essentially, these are either agreements negotiated with ACAS (COT3 agreements), or ‘settlement agreements’, which need to meet the requirements listed below.

Most employment law claims can only be settled in this way, for example unfair dismissal, discrimination, etc. Some employment law claims are treated as so sacred that they cannot even be waived in a settlement agreement. Claims that cannot be waived include some collective consultation failures (where there is a TUPE transfer or collective redundancy) some claims under the Agency Workers Regulation 2010 (although these can be settled through a COT3 agreement), claims under the Trade Union blacklists regulations, and claims for statutory maternity, paternity or adoption pay.

Settlement agreements can be used to cover a wide variety of other claims, which are not specifically employment law related, such as breach of contract (this would cover notice pay etc.) and personal injury claims.

What do settlement agreements look like?

Firstly, the settlement agreement must comply with the statutory rules which stipulate that they must:

In addition the agreement must be in return for a payment (a contract is only binding if there is “valuable consideration”).

A well-drafted settlement agreement will also deal with the following (and so can be very long):