What is a Settlement Agreement?

An agreement that is aimed at settling all present and future claims between an employer and employee. If agreed and signed by both parties the effect of the settlement agreement is to draw a line under the employment relationship. Neither party can force the other to accept a settlement agreement. The terms in the settlement agreement are normally reached after negotiation.

The settlement agreement should set out all terms between the parties ­ for example: termination date; payments owed; immediate and on-going obligations of each party; warranties; indemnities; reference.

One of the conditions for a settlement agreement to be valid is that the employee has received independent legal advice on the terms and effect of the agreement from a legal adviser. The fees associated with this advice are frequently covered by the employer. Regardless of who is paying the legal costs, the adviser must act in the individual’s best interests!