Settlement Agreements

Settlement agreements (formerly known as compromise agreements) are legally binding contracts which can be used to prevent a particular claim arising during or after the employment relationship.

The requirements for a settlement agreement to be effective are contained in ERA 1996 s.203:

  • The settlement agreement must be in writing.
  • The settlement agreement must relate to particular proceedings
  • The employee must receive advice from a relevant independent advisor as to the terms and effect of the proposed agreement.
  • The advisor must be a qualified lawyer or independent centre adviser or a competent trade union official.
  • The advisor must be covered by professional indemnity insurance
  • The advisor must be identified in the agreement
  • The agreement must state that the above requirements are satisfied

The advantage of these documents is that usually an employee will waive the right to make a claim to a court or employment tribunal which are specifically provided for in the agreement.

Settlement agreements are a useful tool which can be tailored specifically to an individual’s needs and provide clarity on matters such as business protection, garden leave, pay and references.

As an employer, it can make commercial sense to offer an employee a settlement agreement rather than to go down the typically lengthy process of dismissing an employee for capability/conduct/redundancy and still have the possibility that the employee could still make a claim.


Settlement through solicitors/ or other appropriate parties

Settlement negotiations are usually ‘without prejudice’ therefore the employment tribunal are not entitled to know any details of the discussions.

Claimants are unlikely to achieve 100% of what their claim would be worth if they were to be successful following a hearing. The parties will need to be aware that the level of payment will reflect the fact that they are avoiding litigation and further legal costs.

The initial sums put forward in the settlement agreement do not usually reflect the figure each party will either offer or accept to settle a claim. Claimant advisers often ask for a higher figure than the one they have advised their clients is likely to be achieved on a settlement.

There will be typical stages at which a settlement might be arranged. A respondent may offer to settle as soon as the ET1 is received to reduce the costs and time of defending a claim.

To reach an agreement on the terms of the settlement agreement there must be give and take on both sides. The aim of the settlement agreement is to put prevent further costs, time and stress by taking the matter to an employment tribunal.


Settlement through ACAS

ACAS (Advisory, Conciliation and Arbitration Service) is a government funded independent party. It has a statutory duty under the Employment Tribunals Act 1996 s.18 to endeavour to promote a settlement of most disputes within the jurisdiction of employment tribunals.

ACAS’s primary function is to commence the Early Conciliation process, this is where ACAS try to resolve the dispute before a claim is brought to the employment tribunal.

If the parties reach a settlement through ACAS it will be recorded on a COT3, a COT3 is also legally binding and it is similar in purpose to a settlement agreement, though the COT3 tends to be more concise.


Settlement Agreements through the Employment Tribunal

There may be a settlement, either in the days running up to the hearing or at the tribunal before the hearing.

When this situation arises, the usual method is for the parties to draft a Tomlin order, a Tomlin order is a type of consent order. It recites that the parties have agreed terms of settlement, and orders that all further proceedings are stayed, but the parties are entitled to apply to court to enforce the agreed terms, should that become necessary, without having to commence new proceedings.

At Optimal Solicitors whatever the circumstances, whether it be limiting the risk of liability, or simply separating from a contractual relationship, we can assist with the process of introducing, negotiating and drafting a Settlement Agreement. You can visit this page to learn about pricing.