What is a settlement agreement?

A Settlement Agreement (formerly known as a Compromise Agreement) is a contract between employer and employee upon an employee’s termination of employment that documents the agreement reached between them.

Donnelly & Elliott have been reviewing Settlement Agreement’s for the local people of Gosport for over 70 years.

The purpose of a Settlement Agreement

Employee-employer relationships often encounter difficult times. Sometimes there has been a breakdown in the relationship that is beyond repair.

A Settlement Agreement gives both parties the opportunity to agree on the terms at the end of an employee’s employment. The Settlement Agreement makes it clear that the employee agrees to give up their right to pursue any claim in an Employment Tribunal in relation to their employment, in return for a fair payment made by employer.

Settlement Agreements & redundancy

Settlement Agreements can be used in redundancy situations. The agreement allows employees to move on quickly with a sum of money that is appropriate to their situation and seniority. This can also reduce the stress of the redundancy procedure and stop the relationship from potentially turning sour, and ending with an employee seeking a claim in an employment tribunal.

Legal requirements

There a number of legal requirements that need to be met for a Settlement Agreement to be valid and legally binding. The Settlement Agreement must be in writing (via email or formal letter) and the employee must obtain independent legal guidance from a qualified Solicitor before signing agreement. This is important as by signing the agreement the employee will find it difficult to pursue any claims in an employment tribunal.


It is important to remember that there are a number of claims that cannot be waived in a Settlement Agreement, for example an employee’s accrued pension rights.

Any claims that have been open to an employee to pursue need to be adequately addressed in the agreement and referenced in the settlement figure, ensuring that gives fair value for their role and length of service.

Donnelly & Elliott can review your Settlement Agreement at a time and location that works for you. Please contact our Employment law team on 02392 50 55 00 or email enqs@donnelly-elliott.co.uk