What are the incentives for each party?

The incentives for an employer to enter in to a settlement agreement may be to: settle an existing claim; gain certainty about existing and/or future claims; limit the time, legal fees and business costs associated with litigation; include terms that protect the company (such as a clause ensuring no derogatory comments are made about the company); have clarity on the sums that are owed and when they are payable; return of company property; re-assertion of post-termination restrictions and/or adding new ones (in return for consideration); and/or confidentiality on the fact and terms of the agreement.

Some likely incentives for an employee are that: they should be offered more than they are entitled to under their contract and under statute; their reference may be agreed; an announcement about their departure may be agreed; and/or they can be protected by other terms (such as that the company must not make derogatory comments about them and the agreement must be kept confidential). If the employee has already filed a claim against their employer or former employer then agreeing a settlement agreement with terms that are acceptable to them would mean less time, energy and legal fees need to be invested.