What is a settlement agreement?
A Settlement Agreement is a legally binding document which provides a clean break between the employer and a departing employee. The object of this type of agreement is to settle some or all of the claims that may arise out of the employment relationship or its termination.
It is a mutually agreed document and usually provides for a severance (compensation) payment by the employer, in return for which the employee agrees not to pursue any claim they may have through an Employment Tribunal.
Conditions that must be satisfied in order for the agreement to be legally binding
- the agreement must be in writing;
- the employee must obtain independent legal advice on the terms and effect of the agreement; and
- the agreement must be related to a particular complaint and cannot just be a generic waiver of all statutory and contractual rights.
The agreement can cover just simple basic terms or it can be drafted as a bespoke document for the employer’s business needs.