Understanding a settlement agreement or compromise agreement

A settlement agreement is the same as a compromise agreement or redundancy agreement. All of these terms are essentially mean a contract that is an agreement between both yourself and a current or previous employment. Usually these types of contracts arise when an employer is terminating someones employment and want and employee to give up their rights in exchange for a sum of money.

compromise agreement

So why does my employer need me to sign one of these contracts?

The reason that and employer may want you to sign a compromise agree is so that you can no longer make a legal claim or take any type of legal action relating to employment against them in a court of law, usually in exchange for this they will offer a sum of money. Claims that you can no longer make include things like:

  • Discrimination claims.
  • Unfair dismissal.
  • Wages that have been unpaid.

What is involved with signing settlement agreements?

There are several parts that make up a typical agreement:
Agreement statement: This will basically state the terms of your employment termination and will essentially outline the fact that you can no longer launch and unfair dismissal claim against your employers.
A confidentiality agreement: The majority of employers will insist that you keep the terms of your agreement with them private as well as any other company information that you may have, which is what you will be agreeing to in this section.
Breakdown of compensation: This tells you exactly how much money you are going to be receiving in exchange for giving up your employment rights and rights to any future claims against the company.
A reference agreement: This is not present in all types of contract but occasionally an employer will agree to provide you with a future reference should you seek work in another company.

settlement agreement

Important points to be aware of

There are a few rules when signing settlement agreements that you should be aware of.

A written agreement – Any type of settlement agreement should always be written, verbal contracts I.e something that you employer told you will not work.
The agreement must cover the exact claim – within the settlement contract it will not be acceptable for your employer to simply say that the right to all claims has been given up, the contract should be specific and relate to specific types of claims.
Legal advice must be given – an independent third party must have legally advised you as the employee as to exactly what you’re signing and the rights that you’re going to be giving up.

One of the most important rules is that in order for the agreement to be legally binding is that there is an independent third party present, this rule has been created to ensure that you as an employee are getting fair and impartial advice from someone who is familiar with employment law.

How much money will I get from my settlement agreement?

A settlement agreement usually comes hand in hand with a payment that is given in exchange for the giving up of any current or future claim rights. It can be hard sometimes to know whether the amount offered is fair, so third party legal advice here can be very helpful. Your legal representative should take into account the types of claims that you’re giving up the rights to in your compromise agreement and how likely you would be to succeed with them in court.

Should you sign the compromise agreement or try for more money?

This depends on entirely how you feel and how much effort you’re happy to put into a potential court case. Again, your third party legal representative should be able to advise you here on the most sensible course of action, this can depend on things like the amount offered by the employer, whether you would prefer to have the money now or potentially face a drawn out court case and finally how successful you’re likely to be in the resulting court action.