Compromise/ Settlement Agreement

A Settlement Agreement (formerly called a Compromise Agreement) is a written agreement which, if it complies with various statutory requirements, will have the effect of settling a dispute between an individual and his/her employer. If worded correctly the agreement will prevent the individual from pursuing or continuing a claim in the Employment Tribunal.

All the main pieces of employment legislation, such as the Employment Rights Act 1996, Sex Discrimination Act 1975, Race Relations Act 1976, and the Disability Discrimination Act 1995,(all of the anti-discrimination legislation has effectively been replaced by the Equality Act 2010) include provisions to enable a claim being made under that legislation to be settled through a settlement agreement. As this type of agreement can be concluded without the involvement of the tribunal it is perhaps the most common form of settling any employment rights dispute.

To be valid the agreement must specify the particular issue in dispute(s) between the employer and individual, the particular right or rights that are being settled, and state that the relevant statutory provisions have been satisfied. It is also vital that the individual has obtained independent legal advice from a qualified person (usually a solicitor) about the terms and effects before signing the agreement. The advisor also must be insured to give the advice required.

The importance of the correct content and requirements of the agreement cannot be overestimated, as without them being followed correctly the individual will still be able to make a claim at the tribunal. 

The change of name of this sort of agreement is being introduced alongside changes in the law on the admissibility of evidence about negotations and settlement offers in unfair dismissal claims.The changes that the Government proposes to make to this area will not cover claims of unlawful discrimination, so employers will still have to be particularly cautious about how they raise the possibility of settlement of any discrimination claims.