Settlement Agreements
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
Contact Us
Why Legal Advice Is Essential
A settlement agreement is not legally binding unless the employee receives independent legal advice from a qualified adviser. This is to protect the employee’s rights and ensure they fully understand what they are signing.
We provide clear, supportive advice so you can make informed decisions and negotiate effectively.
Get in Touch
Whether you are an employer seeking to resolve a workplace matter or an employee who has been offered, or would like to request, a settlement agreement, we are here to help.
Contact us at enquiries@thrivelaw.co.uk to speak with one of our experienced employment solicitors.
We will guide you through the process with clarity, empathy and professionalism.
FAQs
A settlement agreement is a legally binding contract between an employer and an employee under which the employee agrees not to pursue specified legal claims in exchange for agreed terms, usually a financial payment.
For the agreement to be binding, it must meet statutory requirements: it must be in writing, identify the specific claims being settled, and the employee must have received independent legal advice from a qualified adviser.
Settlement agreements are entirely voluntary. Being offered one doesn’t necessarily mean you’ve done anything wrong; they’re used across a wide range of situations, from redundancy and performance management to disputes that both parties would rather resolve privately. Our settlement agreements page has more detail.
Yes, and the law requires it. A settlement agreement is not legally binding unless the employee has received independent legal advice from a relevant independent adviser (typically a solicitor) about its terms and effect. Most employers contribute towards the cost of that legal advice; the amount should be confirmed before you instruct a lawyer.
Independent means genuinely independent: a solicitor who also acts for the employer cannot advise you. The advice covers what claims you’re giving up, whether the terms are fair, and what rights you retain. You can negotiate terms before signing, and you should feel no pressure to sign immediately. Get in touch with our team to discuss a settlement agreement.
The core provisions are: the payment to the employee (often structured to maximise any available tax treatment), a list of the claims being waived, any post-termination restrictions, confidentiality and non-disparagement obligations, an agreed reference wording, and the terms of any remaining notice period. The precise structure depends on the circumstances.
Settlement agreements cannot waive certain rights regardless of what the document says. You can’t waive the right to make a whistleblowing disclosure (though confidentiality clauses may limit what you can say publicly), rights to make a report of criminal wrongdoing, rights to pension benefits, or the right to bring a personal injury claim arising from something you weren’t aware of at the time of signing. Our blog on settlement agreements covers more common questions here.
Yes. The reality is that most employers expect some negotiation. The financial payment is the most obvious thing to address, but the reference wording (get it agreed and appended to the agreement rather than relying on a verbal promise), the employer’s contribution to legal fees, any non-disparagement clause and whether it runs both ways, and how the departure is communicated internally and externally are all worth attention.
Before negotiating, take advice on what the claims you’re giving up are actually worth and what a Tribunal might realistically award. That gives you a sound basis for any counter-proposal.
Where it’s in both parties’ interests to move on with a clean slate. Common situations include: a redundancy where the employer wants certainty that no claim follows; a performance or conduct process where both sides would prefer a managed exit; a dispute that neither party wants to litigate; or a grievance that the employer would rather settle than defend.
The “without prejudice” rule, which can protect certain settlement discussions from being disclosed in Tribunal proceedings, has specific requirements to be engaged. If you’re an employer considering approaching an employee about a settlement, take advice on how to open that conversation before doing so. Getting it wrong procedurally can significantly undermine your position. Get in touch with our team here.
