Settlement Agreements: What UK Employers Need to Know

A settlement agreement is a legally binding contract between an employer and an employee that resolves a workplace dispute. In exchange for a financial payment, the employee waives their right to bring specified claims against the employer. Settlement agreements are sometimes called compromise agreements — both terms refer to the same document.

For a settlement agreement to be valid, the employee must receive independent legal advice from a qualified adviser — usually a solicitor — and that adviser must sign the certificate in the agreement. Employers typically contribute to the cost of this advice, often £250 to £350 plus VAT. The agreement must set out clearly which claims are being waived. A generic waiver of "all claims" is not enforceable for claims the employee was not aware of.

Settlement agreements can be used at any stage of an employment dispute — before formal proceedings, during a disciplinary or redundancy process, or after a tribunal claim has been lodged. The offer to enter into settlement discussions is typically made on a without prejudice basis — meaning it cannot be referred to in proceedings if the offer is rejected. Mellow does not draft settlement agreements. For that you need an employment solicitor. But Mellow's case management module holds the correspondence history and timeline that informs the settlement discussion.