A Settlement Agreement is a legally binding contract between an employer and employee, usually used at the end of the employment relationship. 

They used to be called ‘Compromise Agreements’ and do the same thing. These agreements have to be in writing, have to be voluntary and have to be signed off by a solicitor (or trade union official). 

The main purpose of these agreements is to stop the employee from bringing an Employment Tribunal (and any other) claim against the employer. Settlement Agreements may arise after a disciplinary or grievance procedure, on redundancy, resignation or after a ‘without prejudice’ or ‘protected discussion’. 

The ACAS Code of Practice suggest that a minimum of ten days are given for the employee to consider the terms of the agreement, although in practice, they tend to be signed much more quickly. The agreements can look quite daunting and contain a whole raft of legislation that are relevant to employment law. The reason for this is that it is against public policy for an employee to give up their rights to bring a Tribunal claim without taking independent legal advice. Therefore, every piece of legislation relating to the termination of employment or problems during employment needs to have a short clause inserted for the agreement to be legally binding. 

There is no obligation to sign a settlement agreement and if you do not then your employer or you will need to resolve any problems a different way – or, perhaps, go to court or tribunal.