If you find yourself in a position where you and your employer are in disagreement with each other, or have particular issues, your employer may approach you with a Settlement agreement. 

What is a Settlement Agreement?

A Settlement agreement (previously known as a Compromise Agreement)  is a legal contract between an employer and their employee. It is often used when problems arise and the employer wants to manouevre the employee out of the business, but avoid the employee starting any legal action against it afterwards.

The contract will:

  • State the terms of departure for the employee
  • Normally include a clause whereby the employer will pay a sum of money in consideration for the employee forfeiting legal rights
  • Include a clause confirming the maximum legal fees that the employer will contribute towards the employees legal costs. Ultimately the employee is responsible for paying his/her own legal costs but often the Respondent's contribution will be enough to cover them.

The contract must comply with the relevant sections of various Employment Legislation otherwise it will not be enforceable. To ensure the contract is drafted correctly, a solicitor should be enlisted to check the terms and compliance with legislation.

Seek Independent Legal Advice before signing a Settlement Agreement

If your employers has approached you with a settlement agreement, you must agree the terms of the contract with your employer through negotiation. You must also seek independent legal advice before you can sign the agreement. This advice can be obtained from a number of sources including:

  • A solicitor
  • An independent official certified to provide advice
  • An advice centre worker certified as being competent to give advice

Your advisor will explain to you the full meaning of the contract to ensure you understand what the consequences will be after you sign the document. Your advisor must then sign the contract to certify that you were given legal advice by them.

Once you have been given this legal advice you can then sign and return the contract to your employer for full execution.


Know your rights and the how the Law stands on Settlement Agreements. Talk to our award winning employment law team today - Contact us

UK Top Tier Firm 2022 Lexcel Practice Management Standard Birmingham Law Firm of the Year for 2021 Resolution Collaborative Family Lawyer
The Law Society Accredited in Family Law Conveyancing Quality Scheme