Settlement Agreements

What are they?

A settlement agreement is a legally binding contract between an employer and an employee that settles claims the employee may have against their employer.

When are they used?

Normally they arise at the end of an employment relationship but they can also be used at any point to settle a dispute or disagreement between the parties.

Examples of their use include agreeing financial terms to end an employment quickly or when the employer wants to end an underperforming employee’s contract, with both parties agreeing to avoid a lengthy capability and performance process.

What are the legal requirements?

The terms of a settlement agreement need to be carefully considered and mutually agreed between employers and employees. Each agreement should be tailored to the employee’s specific circumstances, identifying which claims the employee is waiving the right to pursue in return for the settlement payment. 

Legally, a settlement agreement is only valid when certain conditions are met. These are:

  • The agreement must be in writing and relate to a “particular complaint/proceedings” that are being settled.
  • Before entering into it, the employee must receive independent legal advice on the terms and effect of the proposed agreement and hi/her ability to pursue any rights before an employment tribunal.
  • The adviser (such as a solicitor or a certified trade union official) must be clearly identified in the written agreement and their advice must be covered by insurance.
  • The agreement must state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied.

Some statutory claims cannot be compromised under a settlement agreement, such as claims relating to TUPE transfers (claims for failure to inform and consult affected employees; failure to pay the compensation that is equivalent to the protective award; and claims for failure to provide employee liability information under TUPE 2006). These can be settled through ACAS, as the conciliation officers can settle claims that are, or could be, the subject of tribunal proceedings.

In practice, employers normally pay the employee’s legal fees for obtaining independent legal advice. 


Settlement agreements are a useful way to avoid employment disputes escalating into legal claims. They may however, not suit every situation. If the settlement agreement does not meet all the statutory requirements, it will not be a valid settlement and the employee could still bring a claim, so it is important to obtain professional advice before you decide to propose or enter into one.

If you are an employer seeking advice or want help understanding your rights as an employee, please contact LF Legal on 0203 146 3549 /

Like this article? Share on


Related articles

Information about our own complaints process, raising concerns to the Legal Ombudsman and to us

We want to give you the best possible service. However, if at any point you become unhappy or concerned about the service we provided then you should inform us immediately, so that we can do our best to resolve the problem.

In the first instance it may be helpful to contact the person who is working on your case to discuss your concerns and we will do our best to resolve any issues at this stage. If you would like to make a formal complaint, then you can read our full complaints procedure here. Making a complaint will not affect how we handle your case.

The Solicitors Regulation Authority can help you if you are concerned about our behaviour. This could be for things like dishonesty, taking or losing your money or treating you unfairly because of your age, a disability or other characteristic. 

You can raise your concerns with the Solicitors Regulation Authority.

What do to if we cannot resolve your complaint

The Legal Ombudsman can help you if we are unable to resolve your complaint ourselves. They will look at your complaint independently and it will not affect how we handle your case.

Before accepting a complaint for investigation, the Legal Ombudsman will check that you have tried to resolve your complaint with us first. If you have, then you must take your complaint to the Legal Ombudsman:

  • Within six months of receiving our final response to your complaint; and,
  • Within one year of the date of the act or omission about which you are concerned; or
  • Within one year of you realising that there was a concern.


If you would like more information about the Legal Ombudsman, you can contact them at the following details:

 Contact details

This website uses cookies to ensure you get the best experience on our website. By closing this message, you consent to our cookies on this device in accordance with our cookie policy unless you have disabled them.