Settlement Agreements

A Settlement Agreement is an Agreement to refrain from issuing or continuing proceedings for a variety of claims including unfair dismissal, sex, disability or race discrimination, non-payment of the minimum wage, contraventions of the Working Time Regulations etc. These agreements were previously known as Compromise Agreements.

In order for a Settlement Agreement to be binding and enforceable the following conditions must be satisfied:

  • The agreement must be in writing.
  • It must relate to the particular complaint or proceedings (e.g. unfair dismissal).
  • The employee must have received advice from a relevant independent advisor on the terms and effect of the agreement (usually a solicitor).
  • The advisor must have professional indemnity insurance in place.
  • The agreement must identify the advisor.
  • The agreement must state that the conditions regulating Settlement Agreements under the relevant Acts are satisfied.


Settlement Agreements usually contain clauses regarding the following:

  • A discharge of all claims arising out of employment or its termination (i.e. including court claims - pension rights and latent personal injuries claims are usually excluded).
  • Confidentiality.
  • An indemnity by the employee regarding any potential tax liability.

Advantages for the employee

  • A method of obtaining a quick settlement. 
  • Avoids the risk of losing a tribunal case.

Disadvantages for the employee

  • The employee may give up a potentially larger claim against their employer.

Advantages for employer

  • The employer knows the exact cost of the settlement and is not exposed to the risk of a tribunal awarding more.
  • Avoids publicity

isadvantages for employer

  • The employer usually has to pay a higher sum than he may think the employee is entitled to.
  • Legal fees are normally partly paid by the employer (but there is no legal obligation to do this).

Always take legal advice!

These comments are provided for guidance only. Each situation has to be examined on its own merits and circumstances and you should not, therefore, rely upon the above without taking specific legal advice in relation to any particular matter.

Specialist advice can be obtained from 
Alan Matthew in our Dundee Office (tel: 01382 200 000) or
from Emma Allan in our Perth Office (tel: 01738 637 311)

February 2013

If you would like to speak to us about any services or have and questions please contact us by filling out the form. 

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Estate Agency Office: 01382 200301

Crieff Office

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Estate Agency Office: 01764 670077