A Settlement Agreement is a legally binding contract between an employer and an employee, typically used to resolve disputes. ¹ These agreements are common in employment situations, particularly when disagreements arise between the parties. The primary purpose of a Settlement Agreement is to document the mutually agreed-upon terms for resolving the dispute, such as those related to the termination of employment or other workplace issues, including alleged discrimination or unpaid wages.

While often associated with the termination of employment, Settlement Agreements are not exclusively used for this purpose. They can also be employed to resolve potential employment claims, even when the employment relationship is intended to continue.

Settlement Agreements are generally considered an efficient method for resolving disputes, as they prevent claims from escalating to an Employment Tribunal. They allow parties to reach a resolution early on, avoiding the time, inconvenience, and costs associated with tribunal proceedings. Furthermore, they provide parties with greater control over the outcome through negotiated settlements, rather than risking an unfavorable decision from a tribunal.

In a Settlement Agreement, an employee typically waives their right to pursue specific legal claims against their employer. In exchange, the employer provides the employee with consideration, which is often, but not always, financial compensation, to acknowledge the employee’s relinquishment of their rights.