A Settlement Agreement is essentially a legally binding contract signed between an employer and an employee. Such contracts are commonly referred to in employment situations when disputes arise between the parties. The primary purpose of a Settlement Agreement is to formally document the terms agreed upon by the parties to resolve the dispute, such as in cases of employee termination or other workplace issues (like alleged discrimination or unpaid wages).

While most settlement agreements pertain to the termination of an employee’s employment, their use is not limited to this scenario. They can be employed to resolve any potential employment claim that an employee may have, even when the employment relationship is intended to continue.

Settlement Agreements are typically seen as practical ways to settle disputes and prevent claims from being brought before an Employment Tribunal. They enable the parties to reach a resolution at an early stage, avoiding the time, inconvenience, and costs that may be incurred if an employee’s claim proceeds to an Employment Tribunal. Settlement Agreements also provide the parties with a greater degree of control over the case, allowing for negotiated settlements, as opposed to the uncertainty of a tribunal outcome.

In a Settlement Agreement, an employee agrees to waive their right to enforce a specific legal entitlement and to forego filing a claim against their employer. In return, the employer provides the employee with some form of consideration (typically, though not always, financial compensation) as compensation for relinquishing that right.