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What is a settlement agreement? Process & guidance

A settlement agreement is legally binding document which can be used by both the employee and employer to resolve a dispute or end employment. They are generally used so the employee and employer can part company on agreed terms. Once known as compromise agreements, they are a way of avoiding costly and long legal battles and can offer an employee financial compensation as well as other benefits, in exchange for not bringing a claim against an employer.

Settlement agreements are covered in the Employment Rights Act 1996, under section 111A, and can request that you keep the terms of the agreement confidential. However, for a settlement agreement to be legally binding, you must receive independent legal advice from a qualified solicitor or union representative; without this, the agreement will not be legally binding. Paying for this legal advice is typically met by the employer. They are not legally required to do this, but often will, because it’s in their best interests to ensure you have the required legal advice to make the agreement binding If you wish to negotiate the terms and conditions of your settlement agreement with the help of a solicitor, then you may have to meet this cost yourself. For expert advice on settlement agreements, contact our employment solicitors today on 0161 696 6170.


What makes a settlement agreement legally binding?

When entering into a settlement agreement, there is a process that must be followed for it to be legally binding. If the settlement agreement does not meet one or more of the below criteria, then it may not be valid, which leaves both the employer and the employee vulnerable.

For a settlement agreement to be legally binding, it must meet the following criteria:

  • It must be in writing
  • It must relate to a particular proceeding(s) or complaint(s)
  • It must be signed by the employee
  • The employee must have received independent legal advice, either from a qualified solicitor or an authorised union representative
  • The legal adviser must be identified and insured
  • The agreement must state that the requirements regulating the settlement agreement have been satisfied
  • A reasonable time limit should be given for both parties to consider the settlement. The ACAS code of practice on settlement agreements states there should be at least 10 calendar days given to review and consider the proposal.

Also, both parties are not obliged to enter into an agreement if they do not wish to. However, once a settlement agreement has been signed, the employee, usually, waives their right to bring a future claim against the employer.

ACAS code of practice on settlement agreements

The guidelines for settlement agreements are laid out in the ACAS code of practice on settlement agreements. ACAS are an independent public body that provide free and impartial advice to employers, employees and their representatives on employment rights, policies and disputes.

The ACAS code of practice on settlement agreements focuses on guidance for confidentiality and negotiations as well as general guidelines on how this should be conducted.

  • Under section 111A of the Employment Rights Act 1996 the agreed terms and conditions in the settlement can be kept confidential
  • Under section 111A, any negotiations can be kept confidential and, if the settlement agreement is dealing with a dispute, the ‘without prejudice’ principle may be used. This means that any offers or anything said (within reason) cannot be used at a later date. (e.g. in a tribunal)
  • Any claims that relate to discrimination, harassment, victimisation, whistleblowing, union membership, asserting a statutory right, breach of contract, wrongful dismissal or any behaviours prohibited in the Equalities Act 2010 are not covered by the confidentiality provisions of section 111A
  • If either the employer or the employee are subject to any improper behaviour then the confidentiality provisions set out in section 111A may not apply. Ultimately, what constitutes improper behaviour is for a tribunal to decide, but examples may include:
    • Any form of harassment, bullying or victimisation
    • Discrimination based on protected characteristics
    • Physical assault or any other criminal behaviour
    • Putting undue pressure on a party, which can include not giving enough time to consider the agreement and threatening dismissal (when no disciplinary process has begun) if you do not sign the agreement

For a more in depth look into the ACAS code of practice on settlement agreements, go to

If you need legal advice and guidance on a settlement agreement, contact one of our expert employment solicitors today on 0161 696 6170.

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