A settlement agreement sets out what an employer will offer the employee in return for waiving their rights to potential claims against the company. Once both parties sign a settlement agreement, it will be legally binding and enforceable.

It will not only contain details relating to the settlement offered, but it may also contain other terms that the employee must comply with before and after receiving their settlement. These terms might relate to confidentiality, a declaration of no known liabilities and a return of company property. As well as accepting any compensation for the loss of your employment, you must understand your obligations under the agreement.

Given the nature of this agreement, the law requires employees to seek legal advice before entering such an agreement. As an employer usually initiates a settlement agreement, the law provides for that employer to make a contribution to the employee’s legal fees.

It may be offered where a dispute arises and cannot be resolved satisfactorily or in a redundancy situation. In these situations, you may be entitled to bring an employment claim. The agreement acts as a defence to an employment claim. Therefore when considering an agreement, you should assess whether any monetary offer is reasonable and in line with what you might receive if you refused the settlement agreement.

The benefits of resolving a dispute through a settlement agreement are that you will not have to spend time pursuing a claim through the Tribunal or incur the legal costs involved. In addition, you are avoiding the risk of losing the claim and receiving nothing.