Settlement agreements (previously known as compromise agreements) are contracts that can be entered in to by an employer and an employee to settle any employment rights or claims that the employee may have.

They are usually used to terminate an employee’s employment, and if negotiated properly, are a very useful tool for employees and employers as they enable the employer to ensure that no future claims will be made by an employee, whilst allowing an employee to receive a financial payment (very often tax free) as compensation for giving up such rights. They save the need for employment tribunal proceedings which can be expensive and time-consuming, and may attract potentially damaging publicity.

In order to be binding, there are several requirements that must be fulfilled, however, the most important is that the employee must take independent legal advice on the contents and the effect of the agreement before agreeing to enter in to it.