Settlement Agreement or Compromise Agreement

If your employment is being terminated by your employer, you may have potential claims against your employer (for example redundancy or wrongful dismissal) and it’s therefore common practice for the parties to enter into a “Settlement Agreement” also known as a “Compromise Agreement”, in which the employer agrees to make a severance payment to the employee, and in return, the employee surrenders any employment tribunal claims they may have against that employer.

The severance payment is usually tax-free, meaning you get to keep the entire amount.

No matter what it says in a Settlement Agreement, it’s important to remember that the law prevents employers from settling some types of claims including pension-related claims and personal injury claims.

It is actually a legal requirement that you have had Independent Legal Advice with regards to the Settlement Agreement, otherwise, it will not become legally binding.

Usually, your employer will pay your legal fees.

If you are happy with your settlement offer, fair enough, our lawyers won’t push you into negotiating if you don’t wish to.

With that said it’s important you get the best deal available, including a fair severance payment, a good reference, a preferable termination date (if a future termination is proposed) any other benefits you believe you are entitled to.

It’s also important that you understand the amount you might expect to receive if you were to make a tribunal claim, to ensure you are not receiving less than your entitlement.

Our lawyers can often help you to negotiate a better deal, and so after your advice on the Settlement Agreement, you will be able to further instruct your solicitor to contact your employer (or its solicitors) on your behalf.