A settlement agreement (formerly known as a compromise agreement) is a legally binding contract between an employer and an employee. It is used to resolve a workplace issue or dispute, usually involving the employee agreeing not to pursue legal claims in exchange for a financial payment or other agreed terms.

Settlement agreements are commonly used when employment is coming to an end, but they can also be entered into during employment or even during an ongoing Employment Tribunal claim. Their purpose is to provide clarity, closure and certainty for both parties.

What Does a Settlement Agreement Usually Include?

A settlement agreement typically covers:

• A financial payment to the employee
• Terms confirming confidentiality for both parties
• Agreement on what will be said internally and externally about the departure
• The wording of a work reference (often very important for the employee)
• A waiver of the employee’s right to bring certain legal claims
• Arrangements for return of property, termination date and status of benefits

Because the employee is waiving legal rights, they must receive independent legal advice for the agreement to be legally binding.

Most employers will contribute towards the employee’s legal fees for this advice—however, the contribution may not cover the full cost, so it is important to check this early on.

How We Support Employers

We draft bespoke settlement agreements for employers, ensuring that the terms are clear, legally robust, and appropriate for the situation. We can also:

• Advise on how to introduce settlement discussions lawfully and sensitively
• Negotiate the terms where required
• Ensure the agreement protects commercial interests, reputation, and confidentiality
• Provide support as part of our Outsourced HR service for ongoing or future cases

Our approach is both strategic and humane, helping maintain dignity and professionalism throughout the process.

How We Support Employees

If you have been offered a settlement agreement or are considering requesting one, we can provide clear, supportive and practical advice. You may wish to speak with us if:

• You are experiencing workplace issues such as discrimination, bullying, harassment, mental health concerns or a breakdown in working relationships
• You are subject to performance, disciplinary or capability procedures
• Your employer has suggested ending your employment on agreed terms
• You are already involved in an Employment Tribunal claim and a settlement offer has been made
• You have a long-term physical or mental health condition and are unable to continue working

We will help you:

• Understand the agreement and your rights
• Negotiate terms that are fair and reflect your circumstances
• Ensure your future employment prospects are protected
• Secure an agreed reference where beneficial
• Approach the process confidently and professionally