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Q: What is a settlement agreement?

A settlement agreement in an employment context was formerly known as a compromise agreement. It is an agreement between the employer and employer requiring the employee to sign away their rights to any claims they may have against the employer. The settlement agreement is a legal document drawn up to agree the terms of which the parties part company and the employee usually receives a compensation payment from the employer in return for them agreeing to give up their rights in the termination of their employment.

This can give an employer peace of mind in a situation where there may have been a dispute and they want to terminate the employee’s employment knowing that the employees cannot make any claims against the Company in Court or in an Employment Tribunal.

Settlement agreements can also be used to ensure confidentiality around a termination of employment.

The agreed wording of a reference is often commonly included as part of the agreement, giving the employee peace of mind knowing that their Employer is legally obliged to provide prospective employers a reference in the terms agreed.

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