Employment Settlement Agreements

A settlement agreement (formerly known as a Compromise Agreement) is a legally binding agreement between an employer and an employee, which will usually provide for a severance payment by the employer to the employee, in exchange for the employee’s agreement that it will not pursue any claim against you arising from their employment.

Settlement agreements are often used in situations whereby an employer and an employee have had a disagreement that does not appear capable of being resolved, and to give both parties a “clean break” in terminating the employment relationship. They can avoid the need for a long, drawn out disciplinary or redundancy process to be engaged, or can settle a claim that an employee may be seeking to pursue against you.

Settlement agreements are widely used by many employers, as a standard approach, to avoiding or settling workplace disputes.

What are the statutory requirements for a settlement agreement to be valid?

In order for a settlement agreement to be valid, certain conditions must be met (as set out in the Employment Rights Act 1996). These are as follows:

1. The agreement must be in writing

2. The agreement must relate to a “particular complaint” or “particular proceedings”

3. The employee must have received independent legal advice from a relevant adviser on the terms and implications of the proposed agreement, and on the employee’s ability to pursue any claim before an employment tribunal

4. The identify the adviser must be detailed in the agreement

5. The independent adviser must have a current contract of insurance or professional indemnity insurance (which covers the risk of a claim against them by the employee in respect of the advice)

6. The agreement must state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied.

If a settlement agreement does not comply with any of these requirements, it will likely be deemed to be invalid even if the failure is seemingly only a technical one.

What claims cannot be settlement by way of a settlement agreement?

It is not always possible to use a settlement agreement to “contract out” in respect of certain types of claims.

Those types of claims that are not capable of being settlement by way of a settlement agreement are as follows (note that some of these types of claims may be capable of being settled by way of ACAS Early Reconciliation):

1. Any future claims for personal injury
2. Any claims pertaining to accrued pension rights (except in certain limited circumstances)
3. Any claims in relation to a duty to consider working beyond retirement
4. Any claims for failure to inform and consult, failure to pay the compensation that is equivalent to the protective award or claims for failure to provide employee liability information under the Transfer of Undertakings (Protection of Employment) Regulations 2006;
5. Any claims brought for failure to comply with the requirements of section 188 of Trade Union and Labour Relations (Consolidation) Act to inform and consult with appropriate representatives on collective redundancies
6. Certain claims brought pursuant to the Agency Workers’ Regulations 2010
7. Claims for breach of certain regulations under the Employment Relations Act 1999 (Blacklists)
8. Claims for breach of certain regulations of the Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015
9. Any claim pertaining to the right to statutory maternity pay, statutory paternity pay, statutory adoption pay or shared parental pay
10. Any claim pertaining to certain rights under the Data Protection Act 2018 (DPA), the retained EU law version of the General Data Protection Regulation ((EU) 2016/679) or the General Data Protection Regulation ((EU) 2016/679).

What is ACAS Early Reconciliation?

ACAS is the Advisory, Conciliation and Arbitration Service, and in order for an employee to bring a claim in an Employment Tribunal, they must first engage with the ACAS Early Reconciliation process (an informal and free dispute resolution service). Without doing so, they will not be able to submit a claim to an Employment Tribunal.

During the course of the ACAS Early Reconciliation process, the employee will have the opportunity to explain their claim to a case worker, who will likely then (dependent upon the employee’s wishes) explain the same to the employer and then seek to see if the parties can reach an amicable agreement. The case worker will not be able to provide you with any legal advice or guidance as to the merits of the employee’s claim, they will merely try to see if the parties can reach a mutual settlement.

If an amicable resolution cannot be reached through the Early Reconciliation process, then ACAS will provide the employee with an Early Reconciliation Certificate and the employee will need the reference number on the Certificate in order to submit a claim with an Employment Tribunal.