What is a settlement agreement?

Settlement Agreements are legally binding contracts which codify the legal intentions of two or more parties and ensure compliance through enforceability, i.e. if one party reneges on the terms of the agreement, another party can sue for breach of contract.

Types of Settlement Agreements

The two most common types of Settlement Agreement include:

1. Agreements used to terminate employment contracts
2. Agreements used to legalise offer and acceptance in litigation, not done via Civil Procedure Rule (CPR) 36.

1. Formerly known as compromise agreements, they are used to end an employee’s employment; there is an agreed upon quid pro quo, where the employee agrees not to sue and in return the employer agrees to make a payment, usually in excess of their statutory requirement. These types of agreement are often used when voluntary redundancy is offered and taken; and if accepted, the employee might be asked to leave the workplace immediately, being placed on gardening leave. The employee will also be required to waive all claims against the employer, save for any personal injury, so it is vital that the employee consider the circumstances of their employment being terminated very carefully.

The Employment Right Act 1996 governs Settlement Agreements, and the agreements themselves will generally dictate that independent legal advice is sought by the employee, before the agreement can be fully executed. This advice will likely be paid for by the employer.

2. Offers to settle litigation can be made via CPR 36 ‘Part 36’ and ‘Calderbank’ offers. Part 36 offers have set rules regarding costs, prescribed by the CPR, but Calderbank offers have no such framework; these types of offers will usually require detailed settlement agreements setting out terms to ensure settlement is full and final and fully enforceable.

Next steps

If your employer has offered you voluntary redundancy and has presented you with a settlement agreement, please seek legal advice; our diligent team at TV Edwards Solicitors will happily assist and there will be no additional cost to you; our full fee will be covered by your employer’s contribution.
Alternatively, if you have a claim currently being litigated, please consider the benefits of compromise and settlement, and a properly drafted Settlement Agreement. At TV Edwards Solicitors our experienced lawyers can guide you in the drafting of Settlement Agreements, and all other aspects of the litigation process.