Houldsworth Solicitors

Clitheroe: 01200 422152
Whalley: 01254 825757

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What you need to know before you sign a Settlement Agreement

Published on June 5th, 2020

John Houldsworth
Solicitor & Director

Settlement Agreements (previously called compromise agreements) are legally binding contracts which can be used to end an employment relationship on agreed terms. They can also be used to resolve an ongoing workplace dispute, for example, a dispute over holiday pay. This agreement can be proposed by either an employer or an employee although it will normally be the employer.

The key points about Settlement Agreements are as follows: -

  • • Settlement Agreements are legally binding contracts that waive an individual’s rights to make a claim covered by the Agreement to an employment tribunal or court
  • • The Agreement must be in writing
  • • They usually include some form of payment to the employee and may often include a reference 
  • • They are voluntary 
  • • They can be offered at any stage of an employment relationship
  • • The employee must take independent legal advice on the terms of the Settlement Agreement


Once a valid Settlement Agreement has been signed, the employee will be unable to make an employment tribunal claim about any type of claim which is listed on the Agreement.

Settlement Agreements are voluntary, and the parties do not have to agree to them or enter into discussions about them. There can be a process of negotiation, during which both sides make proposals and counter proposals until an agreement is reached or both parties decide no agreement can be reached.

When the Settlement Agreement includes an agreement to end the employment relationship, an employment can end with the required notice, or the timing can be agreed as part of the Settlement Agreement.

Therefore, Settlement Agreements are very important documents, both from an employer and employee’s point of view, as they provide absolute certainty to both parties at the difficult time of ending an employment relationship. It is very important that you obtain specialist advice regarding the settlement agreement to make sure that you are protected. For example, does the agreement provide that your employer must provide you with a reference (otherwise employers are under no obligation to provide you with a reference)? Are there covenants in the agreement that prevent you from working in the same industry or area as your current employer?

We regularly provide advice on settlement agreements to employers and employees in Clitheroe, Whalley and the surrounding area so if you require a confidential and free consultation please contact John Houldsworth on 01200 422152 or e-mail john@houldsworthsolicitors.co.uk